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Controlled Groups and Attribution Rules: Benefit Plans, Brother-Sister Groups, and Tax Reform

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, November 7, 2019

Recorded event now available

or call 1-800-926-7926

This course will breakdown the application of controlled group and ownership attribution rules using examples, and point out where, under recent tax reform and existing rules, they are applicable. Complex, difficult to wade through, and are not consistent throughout the IRC and regulations. At the same time, practitioners must be familiar with the rules in order to make use of them for the benefit of their clients and to avoid potential liability.


Internal Revenue Code § 414(b) requires the treatment of controlled groups as a single employer for most benefit plan purposes, but determining whether a business is part of a controlled group is challenging. Section 1563 details the requirements of parent-subsidiary, brother-sister, and combined groups, but this alone is not enough. Practitioners must be familiar with, and wary of, the ownership attribution rules which can create unintended related groups.

A parent-subsidiary controlled group is formed when one business owns 80% or more of another company. A brother-sister group exists when five or fewer owners own a controlling interest and have effective control of a set of entities. Effective control requires more than 50% collective ownership of the stock in each corporation, taking into account only the owner’s lowest common ownership percentage amount the entities under consideration. The determination becomes more difficult under the many rules that attribute business ownership to individuals who don't have direct ownership in an entity (IRC Sections 267, 1563, 318, as well as others).

At the same time, business owners and tax practitioners cannot ignore these determinations. Controlled groups are treated as single employers for retirement and health benefit plan purposes which can have serious impacts on who the plan covers or who the plan must take into account when performing coverage and nondiscrimination testing. Failing to take controlled group status into account when operating your benefit plans can expose the plans to possible loss of tax qualified status. Discovery of these issues often comes up in the due diligence process preceding a sale or merger of a business and in some cases the size of the potential tax liability can derail the transaction.

Familiarity with the controlled group rules is also essential to understanding and implementing several aspects of recent tax reform (Tax Cut and Jobs Act of 2017). The business interest limitation rules, IRC Section 163(j), the use of the cash basis of accounting, and the exemption from UNICAP all require aggregation of receipts under attribution rules to qualify for the under-$25 million gross receipts test.

Listen as our panel of experts explains how to recognize constructive ownership, how to apply the attribution tests using specific examples, and where related party rules matter under recent and prior tax regulations.



  1. Related parties
    1. Section 1563: controlled groups
    2. Section 414(b)-(c) controlled groups and Section 414(m) affiliated entities
  2. Determining attribution
  3. Related party considerations
    1. Benefit plans
    2. Small Business Taxpayers
    3. Tax consequences
  4. New considerations after tax reform


The panel will review these and other critical issues:

  • Definitions of parent-subsidiary and brother-sister relationships
  • Applying attribution rules using case scenarios
  • Determining the aggregation threshold under recent tax reform
  • Identifying affiliated services groups
  • Tax caveats of being a related party


Johnston, Lori Anne
Lori Anne Johnston

Washington National Tax Manager

Ms. Johnston is a member of RSM’s Washington National Tax practice, specializing in accounting methods and...  |  Read More

Roberts, Christine
Christine P. Roberts

Mullen & Henzell

Ms. Roberts practices in the complex and ever-changing field of employment benefits law (ERISA). For more than twenty...  |  Read More

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