8964 / What is a controlled group of corporations?

The controlled group rules aggregate several entities (this rule applies to corporations, but also to proprietorships and partnerships) into a single employer for meeting various qualification requirements of the IRC. In general, the determination of whether a group is a controlled group of corporations or under common control considers stock ownership by value or voting power. All employees of a group of employers that are members of a controlled group of corporations or, in the case of partnerships and proprietorships, are under common control will be treated as employed by a single employer.¹

A controlled group may be a parent-subsidiary controlled group, a brother-sister controlled group, or a combined group, as follows:²

(1) A parent-subsidiary controlled group is composed of one or more chains of subsidiary corporations connected through stock ownership with a common parent corporation. A parent-subsidiary group exists if at least 80 percent of the stock of each subsidiary corporation is owned by one or more of the other corporations in the group and the parent corporation owns at least 80 percent of the stock of at least one of the subsidiary corporations. When determining whether a parent owns 80 percent of the stock of a subsidiary corporation, all stock of that corporation owned directly by other subsidiaries is disregarded.

(2) A brother-sister controlled group is two or more corporations in which five or fewer individuals, estates, or trusts own stock consisting of 80 percent or more of each corporation, and more than 50 percent of each corporation when taking into account each stockholder’s interest only to the extent each stockholder has identical interests in each corporation. For purposes of the 80 percent test, a stockholder’s interest is considered only if the stockholder owns some interest in each corporation of the group.³