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) .