Regarding the family attribution rules under IRC Sec 1563, there was an interpretation years ago by S. Derrin Watson that stated that a husband's & wife's ownerships in an entity cannot be double counted even under the attribution rules. For example, if a husband/wife both own 50% of Corp A you cannot state that under Sec. 1563 that each own 100% (50% direct ownership + 50% indirect ownership). Instead, you can state that the husband owns 75% and the wife owns 25%, 100% owned by husband and 0% by wife, or any other combination to equal 100%. It seems to me that by interpreting the family attribution rules in this manner, that you are able to manipulate the controlled group status.

Any thoughts on the double counting interpretation?

Do you recall if that interpretation also suggested that the IRS could manipulate the percentages differently than the taxpayer might?

I'm a little confused. Let's go ahead and suppose that for business A, you use 75%/25% for the spouses. Or 90/10, or whatever.

Now for business B, let's assume the spouse with the lesser (or greater, doesn't matter) ownership of business A also has some level of ownership in business B. For purposes of the controlled group/affiliated service group rules, this spouse will be considered as owning 100% of business A, through spousal attribution rules.

Can you post Derrin's entire example to which you refer, or give a page number reference? I'm sure I'm missing something, and Derrin's "Who's the Employer" is my CG bible, so I'd like to see precisely what he said, and in what context. Thanks!

My reference regarding this topic is an answer provided by S. Derrin Watson posted on 4/27/05 from Benefits Link Q&A titled Attribution Mechanics. As I reread his response, he makes the following statement "As between any pair of corporations, the ownership that will create a controlled group is the ownership you use" Which I guess you can interpret to mean that any combination of ownership between a husband and wife and their respectively owned businesses albeit direct or indirect that would constitute a controlled group is what is considered. So you can not manipulate ownership to make a group of business not a controlled group. Do you agree?

It sounds to me that Derrin's point (as you further fleshed it out) was that if there is any possible combination of percentages between husband and wife that results in a controlled group, you've got a controlled group to contend with. That would be what I'd expect the IRS' position to be.