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Controlled Groups

August 15, 2022

Multiple entities that are under common control through a specific percentage of stock ownership are required to be treated as controlled groups for income tax purposes. There are mainly three types of controlled groups, including parent-subsidiary controlled groups, brother-sister controlled groups, and a combined group. The stock ownership requirement is different for each type of the controlled group.

Types of Controlled Groups

A parent-subsidiary controlled group exists when one or more chains of corporations are connected through stock ownership with a common parent corporation; and

  1. One or more corporations in the group own at least 80 percent of the voting stock or at least 80 percent of the total value of shares of all classes of stock of each of the corporations in the group, except the common parent corporation.

  2. The common parent corporation must own 80 percent of the voting stock or at least 80 percent of the total value of shares of all classes of stock of at least one other corporation in the group.

A brother-sister controlled group is a group of two or more corporations, in which five or fewer common owners (a common owner must be an individual, a trust, or an estate) own directly or indirectly more than 50 percent of the total combined voting power of all classes of stock or more than 50 percent of the total value of shares of all classes of stock of each corporation, but only to the extent such stock ownership is identical to such corporation.

A combined group means any group of three or more corporations if each organization is a member of either a parent-subsidiary or brother-sister group, and at least one corporation is the common parent of a parent-subsidiary and is also a member of a brother-sister group.

A life insurance-controlled group consists of two or more life insurance companies, each of which is a member of a controlled group of corporations.

Tax Treatments

Generally, it’s a disadvantage to be considered as controlled groups, because corporations of controlled groups are treated as a single corporation taxpayer. Thus, they must divide certain tax benefits among the members. For instance, members of one controlled group are limited to one accumulated earnings credit. Moreover, the IRS treats controlled group members as a single taxpayer when determining the tax liability limitation for general business credits and the annual dollar limitation on expensing assets.

The members of a controlled group must generally allocate the specified tax benefit items equally among themselves unless they adopt an apportionment plan that allocates such items unequally. A corporation that is a component member of a controlled group must use Schedule O, Consent Plan and Apportionment Schedule for a Controlled Group, to report the apportionment of certain tax benefits between all component members of the group. These members will be subject to limitations on the use of certain tax benefits for their applicable tax year. A corporation must file Schedule O even if no apportionment plan is in effect, or the amounts apportioned have not changed from the previous tax year.


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