Determine attribution of ownership

In order to understand how to determine ownership, it’s essential to understand the attribution rules. A family or business relationship may cause a person or organization to be treated as indirectly owning an interest in a business.

Attribution of ownership overview

The determination of an organization’s ownership is critical to the administration of a qualified retirement plan. Ownership is used to ascertain whether an organization is considered to be part of a controlled group or an affiliated service group and also is used to determine an individual’s status as a highly compensated employee (HCE) and/or a key employee for nondiscrimination testing and top-heavy purposes, if applicable.

Although the attribution rules are written in terms of stock ownership, the same rules are applied to organizations that aren’t incorporated. For example, partnerships are based on capital or profits interest, limited liability companies (LLCs) are based on membership interests, trusts and estates are based on actuarial interests, and a sole proprietor is treated as owning 100% of his or her business.

The attribution rules applicable to qualified plans generally fall under three sections of the Internal Revenue Code (IRC):

  • Attribution under IRC Section 1563: Used in the determination of controlled group status
  • Attribution under IRC Section 318: Used to determine highly compensated employees, key employees and affiliated service groups
  • Attribution under IRC Section 267(c):  Used to identify certain “disqualified persons” under the IRC Section 4975(e) prohibited transaction rules

Family and organizational attribution rules

Interest owned by parents and their children, interest between spouses, and interest among grandparents and their grandchildren can be subject to attribution. Organizational ownership interests may be attributed proportionally.

Get in-depth information on the rules attribution of ownership and how they’re applied to families and organizations. Download the full article (PDF) .

This material is provided by The Lincoln National Life Insurance Company, Fort Wayne, IN, and, in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY, and their applicable affiliates (collectively referred to as “Lincoln”). This material is intended for general use with the public. Lincoln does not provide investment advice, and this material is not intended to provide investment advice. Lincoln has financial interests that are served by the sale of Lincoln programs, products and services.

Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein.