The rules for聽parent-subsidiary controlled group and聽a brother-sister controlled group of corporations, or a combined group of corporations under Code Section 414(b) are provided below:
Parent-Subsidiary Controlled Group of Corporations
Under Code Section 414(b), a parent-subsidiary controlled group is one or more chains of corporations connected through stock ownership with a common parent if:
80% or more of the total combined voting power of all classes of stock entitled to vote (or 80% or more of the total value of all shares of all classes of stock) of each of the corporations, except the common parent corporation, is owned, directly or indirectly, by one or more of the other corporations; and The common parent corporation owns, directly or indirectly, 80% or more of the total combined voting power of all classes of stock entitled to vote (or 80% or more of the total value of shares of all classes of stock) of at least one of the other corporations. 聽聽The parent may he multiple subsidiaries, and may he multiple tiers of subsidiaries.
A Brother-Sister Controlled Group of Corporations聽
Under Code Section 414(b), a brother-sister controlled group聽 of corporations is a group where five or fewer persons who are individuals, estates, or trusts own, directly or indirectly, stock possessing-
80% or more of the total combined voting power of all classes of stock entitled to vote (or 80% or more of the total value of all shares of all classes of stock) of each corporation; and More than 50% of the total combined voting power of all classes of stock entitled to vote (or more than 50% of the total value of all shares of all classes of stock) of each corporation, taking into account the stock ownership of each owner only to the extent that the level of ownership interest is identical with respect to each corporation.聽The five or fewer individuals, estates, or trusts with respect to whom stock ownership is considered for purposes of determining whether the 80% requirement is satisfied must be the same individuals, estates, or trusts whose stock ownership is considered for purposes of the greater-than-50% requirement. Thus, the brother-sister controlled聽 group聽 should be of concern where five or fewer shareholders (who are individuals, estates, or trusts)-(a) own at least 80% of each corporation and (b) own more than 50% of all corporations taking into account identical ownership interests with respect to each corporation. 聽
Combined Group of Corporations
Under Code Section 414(b), a controlled group聽 of corporations also may comprise an overlapping parent-subsidiary controlled group and a brother-sister controlled聽 group聽 of corporations. This occurs if:
Each corporation is a member of either a parent-subsidiary controlled聽 group聽 or a brother-sister controlled聽 group; and At least one of the corporations is the common parent of the parent-subsidiary controlled聽group聽 and also is a member of a brother-sister controlled聽 group.