Controlled Group Extended Examples - AutomatedPensions.com
Controlled Group Extended Examples
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Updated: 17/Jun/06 14:07:47
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Controlled Group Extended Examples

Due to the complexity of Controlled Groups, it may be instructive to show a few more examples (several are included in the Controlled Groups article).

Example: 3 owners, 3 businesses

Suppose that 3 businesses have the following ownership structure:


Ownership Percentages
Sole-Prop. A Corp.  B Partnership C
Owner 1 100.00% 79.00% 50.00%
Owner 2
21.00% 30.00%
Owner 3

20.00%

Because Owner 2 and 3 have 0% ownership in Sole-Proprietorship A, their ownership intersts are not considered for any Controlled Group determination involving company A. For example, when company A is paired with Corporation B for testing, we get:

Controlled Group Determination

Ownership Percentages Common Ownership
Sole-Prop. A Corp. B
Owner 1 100.00% 79.00% 79.00%
Owner 2


Owner 3


Total: 100.00% 79.00% 79.00%


Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?
TRUE FALSE TRUE
Controlled Group? NO (at lease one of above tests is false)

The lines for Owners 2 and 3 are blank and are ignored. Because Owner 1 owns less than 80% of company B, A and B fail to form a Controlled Group. Similarly for A and C. Therefore, Sole-Proprietorship A is not a member of any Controlled Group of employers.

There remains the possibility that B and C form a Controlled Group. Again, because Owner 3 has 0% ownership in B, we only consider the ownership interests of Owners 1 and 2 in the test:

Controlled Group Determination

Ownership Percentages Common Ownership
Corp. B Partnership C
Owner 1 79.00% 50.00% 50.00%
Owner 2 21.00% 30.00% 21.00%
Owner 3


Total: 100.00% 80.00% 71.00%


Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?
TRUE TRUE TRUE
Controlled Group? YES (all of above tests are true)

In this case, Owners 1 and 2 own a Controlling Interest in B and C, and they also own a Majority Common Interest, so these two businesses do form a Controlled Group of employers.

Example: 5 owners, 5 companies

Take an example of 5 owners and 5 companies:

Controlled Group Determination

Ownership Percentages Common Ownership
Employer A Employer B Employer C Employer D Employer E
Owner 1 20.00% 80.00% 10.00% 50.00% 5.00% 5.00%
Owner 2 20.00% 5.00% 30.00% 5.00% 5.00% 5.00%
Owner 3 20.00% 5.00% 20.00% 10.00% 20.00% 5.00%
Owner 4 20.00% 5.00% 20.00% 15.00% 20.00% 5.00%
Owner 5 20.00% 5.00% 20.00% 20.00% 50.00% 5.00%
Total: 100.00% 100.00% 100.00% 100.00% 100.00% 25.00%


Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?
TRUE TRUE TRUE TRUE TRUE FALSE
Controlled Group? NO (at least one of above tests is false)

Clearly in this example, all 5 do not form a Controlled Group because of the Majority Common Interest test. However, is found that removing Employer B from the test yields a Controlled Group of 4 employers:

Controlled Group Determination

Ownership Percentages Common Ownership
Employer A Employer B Employer C Employer D Employer E
Owner 1 20.00%
10.00% 50.00% 5.00% 5.00%
Owner 2 20.00%
30.00% 5.00% 5.00% 5.00%
Owner 3 20.00%
20.00% 10.00% 20.00% 10.00%
Owner 4 20.00%
20.00% 15.00% 20.00% 15.00%
Owner 5 20.00%
20.00% 20.00% 50.00% 20.00%
Total: 100.00%
100.00% 100.00% 100.00% 55.00%


Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?
TRUE
TRUE TRUE TRUE TRUE
Controlled Group? YES (all of above tests are true)

Further checking reveals one additional combination that forms a Controlled Group: Employer B and D taken together without any other employers:

Controlled Group Determination

Ownership Percentages Common Ownership
Employer A Employer B Employer C Employer D Employer E
Owner 1
80.00%
50.00%
50.00%
Owner 2
5.00%
5.00%
5.00%
Owner 3
5.00%
10.00%
5.00%
Owner 4
5.00%
15.00%
5.00%
Owner 5
5.00%
20.00%
5.00%
Total:
100.00%
100.00%
70.00%


Controlling Interest:
Is each column ≥ 80%?
Majority Interest:
Total > 50%?

TRUE
TRUE
TRUE
Controlled Group? YES (all of above tests are true)