Common Ownership Graph
Common Ownership Graph
California Forms & Instructions Corporate Taxes #100
Franchise Tax Board – Search for forms
IRC 414 Employees of Controlled Group of Corporations
IRC 414 Employees of Controlled Group of Corporations
Corporate Income Tax Return Form 1120
Corporate Income Tax Return Form 1120

Employers, Companies & Corporations that are affiliated (common ownership)  and that are eligible to file a combined income tax return IRS #1120  for purposes of state taxation shall be considered one employerCA Insurance Code 10753 (q) (1) (A)     Revenue & Tax Code 25105

Certain affiliated employers with common ownership or part of a controlled group must aggregate their employees to determine their workforce size. Proposed regulations (pdf) and FAQs also provide more information about determining the size of your workforce.  IRS.Gov

So, when you send us your census for a Health Insurance Quote, please include all employees, from all affiliated companies,  so we can properly calculate  the number of  eligible employees, for Health Insurance  participation and Employer Mandate requirements.

Management Carve Outs – where top salaried employees and owners get better benefits, are pretty much out, under Health Care Reform §2716.

An affiliated group is one or more chains of includible corporations connected through stock ownership with a common parent corporation. 26 USC §1504(a) and (b). The common parent must be an includible corporation and the following requirements must be met.

1. The common parent must own directly stock that represents at least 80% of the total voting power and at least 80% of the total value of the stock of at least one of the other includible corporations.

2. Stock that represents at least 80% of the total voting power, and at least 80% of the total value of the stock of each of the other corporations (except for the common parent) must be owned directly by one or more of the other includible corporations. (More detail @ IRS Form 851)

Send your CENSUS for FREE Health Insurance Proposals

FAQ’s

1) What constitutes common ownership?

In CA click here for §25105   Federal §414

Is that basically if a company/owners are owners of other entity’s as well?

Yes, read the code and check with your attorney and/or CPA.

2) Are there certain rules related to paying for health insurance?

Yes.  In CA  Insurance Code 10753 (q) (1) (A)   says that affiliated companies have to be combined for Insurance Purposes

3) Are there Corporate rules of common ownership as it relates to health benefits?

See # 2.  Insurance Rules, simply follow the tax code.

If two or more companies have a common owner or are otherwise related, are they combined for purposes of determining whether they employ enough employees to be subject to the Employer Shared Responsibility provisions?

Yes, section 4980H (c) (2) (C) includes a longstanding provision that also applies for other tax and employee benefit purposes, under which companies that have a common owner or are otherwise related generally are combined and treated as a single employer, and so would be combined for purposes of determining whether or not they collectively employ at least 50 full-time employees (including full-time equivalents). If the combined total meets the threshold, then each separate company is subject to the Employer Shared Responsibility provisions, even those companies that individually do not employ enough employees to meet the threshold. (Note that these rules for combining related employers do not apply for purposes of determining whether a particular company owes an Employer Shared Responsibility payment or the amount of any payment. That is determined separately for each related company).  IRS.Gov Question # 6

Employer Aggregation Rules

Companies with a common owner or that are otherwise related under certain rules of section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determining ALE status.  If the combined number of full-time employees and full-time-equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE and is subject to the employer shared responsibility provisions, even if separately the employer would not be an ALE.

Example 3 – Employers are Aggregated to Determine ALE Status:

  • Corporation X owns 100 percent of all classes of stock of Corporation Y and Corporation Z.
  • Corporation X has no employees at any time in 2015. • For every calendar month in 2015, Corporation Y has 40 full-time employees and Corporation Z has 60 full-time employees. Neither Corporation Y nor Corporation Z has any full-time equivalent employees.
  • Corporations X, Y, and Z are considered a controlled group of corporations.
  • Because Corporations X, Y and Z have a combined total of 100 full-time employees for each month during 2015, Corporations X, Y, and Z together are an ALE for 2016.
  • Corporation Y and Z are each an ALE member for 2016.
  • Corporation X is not an ALE member for 2016 because it does not have any employees during 2015.

There is an important distinction for employers to keep in mind regarding these aggregation rules.  Although employers with a common owner or that are otherwise related generally are combined and treated as a single employer for determining whether an employer is an ALE, potential liability under the employer shared responsibility provisions is determined separately for each ALE member.

Also, a special standard applies to government entity employers in the application of the aggregation rules under section 414.  Because section 414 relates to common ownership and ownership isn’t a typical arrangement for government entities, and because specific rules under section 414 of the Code for government entities haven’t yet been developed, government entities may apply a good faith reasonable interpretation of section 414 to determine if they should be aggregated with any other government entities.

See Q&A #s6 and 42 on our employer shared responsibility provisions questions and answers page for more information.   Learn More IRS.gov

 

More Explanation and Definitions

California Forms

California Corporate Income Tax Return Form # 100  See questions on Page 3…

Instructions 52 page pdf 100bk Rev 2014  Page 11

CA – EDD Unity of Enterprise – Information Sheet DE 231

Unity of operation is evidenced by central financing, accounting, and management of each business entity which includes, but is not limited to, common management, personnel policies, operating procedures, pricing, collections, and financing.
 .
Unity of use of two or more business enterprises shall be united if they share a general system of operation and the enterprises are organized for common purposes, and each is coordinated with, or is a part of, the entire operation.
 .
A corporation may file a combined report with other members of a unitary group only if the corporations are members of a commonly controlled group as defined by R&TC Section 25105. Generally, a commonly controlled group exists when stock possessing more than 50% of the voting power is owned, or constructively owned, by a common parent corporation (or chains of corporations connected through the common parent) or by members of the same family. A commonly controlled group also includes corporations that are stapled entities, see R&TC Section 25105(b)(3). Special rules are provided in R & T C Section 25105 for partnerships, trusts and transfers of voting power by proxy, voting trust, written shareholder agreement, etc
.

Is your employee subject to SDI and Unemployment Tax?  Questionnaire Form 1870

CA Guidelines for Corporations Filing a Combined – Unitary Report #1061

Federal – IRS Forms

IRC §414 Single Employer  §1563 Definition Controlled Group of Companies

What about Leased Employees? §414 n

IRS Form #1120 Corp Income Tax Return

IRS Form 851 Affiliations Schedule & Instructions

IRS Form #8869 Qualified Subchapter S Subsidiary Election

IRS Textbook Training – Controlled & Affiliated Companies 108 Pages pdf

baker law.com 2012 Explanation, including PPACA – Employer Mandate

Form 5500 Employee Benefit Plans Annual Reporting

 

Consumer Resources & Links

 

View Manual’s & Rules from each of the Companies we represent

Aetna’s Form  I certify that the applicant is a single employer under section 414 of Internal Revenue Code of 1986 (26 U.S.C. § 414 (b), 9c), (m), or (o), and under any applicable state law.

Blue Shield’s rule:  If an owner believes that the structure of his/her holdings produces a single employer/employee relationship, Blue Shield will require copies of all associated Articles of Incorporation, Partnership Agreements, and a letter from the employer’s CPA stating that all business entities are eligible to file a combined tax return.  Blue Shield’s determination of whether or not there is one responsible employer will be final. blue shield ca.com

PacifiCare – UHC Common Ownership Form

Notice 2016-03 provides that the Treasury and the IRS will issue guidance with respect to Cycle A elections made by controlled groups and affiliated service groups; expiration dates on determination letters issued prior to January 4, 2016; and the extension of the deadline for certain employers to adopt a defined contribution pre-approved plan and apply, if permissible, for a determination letter with the current 6-year cycle.

Related Pages in the Management Carve Out – Salary Discrimination Section

PPACA Employer Mandate over 50 employees

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California Revenue & Tax Code §25105   pdf

(a) For purposes of this article, other than Section 25102, the income and apportionment factors of two or more corporations shall be included in a combined report only if the corporations, otherwise meeting the requirements of Section 25101 or 25101.15, are members of a commonly controlled group.

(b) A “commonly controlled group” means any of the following:

(1) A parent corporation and any one or more corporations or chains of corporations, connected through stock ownership (or constructive ownership) with the parent, but only if

(A) The parent owns stock possessing more than 50 percent of the voting power of at least one corporation, and, if applicable,

(B) Stock cumulatively representing more than 50 percent of the voting power of each of the corporations, except the parent, is owned by the parent, one or more corporations described in subparagraph (A), or one or more other corporations that satisfy the conditions of this subparagraph.

(2) Any two or more corporations, if stock representing more than 50 percent of the voting power of the corporations is owned, or constructively owned, by the same person.

(3) Any two or more corporations that constitute stapled entities.

(A) For purposes of this paragraph, “stapled entities” means any group of two or more corporations if more than 50 percent of the ownership or beneficial ownership of the stock possessing voting power in each corporation consists of stapled interests.

(B) Two or more interests are stapled interests if, by reason of form of ownership restrictions on transfer, or other terms or conditions, in connection with the transfer of one of the interests the other interest or interests are also transferred or required to be transferred.

(4) Any two or more corporations, all of whose stock representing more than 50 percent of the voting power of the corporations is cumulatively owned (without regard to the constructive ownership rules of paragraph (1) of subdivision (e)) by, or for the benefit of, members of the same family. Members of the same family are limited to an individual, his or her spouse, parents, brothers or sisters, grandparents, children and grandchildren, and their respective spouses.

(c)

(1) If, in the application of subdivision (b), a corporation is eligible to be treated as a member of more than one commonly controlled group of corporations, the corporation shall elect to be treated as a member of only one commonly controlled group. This election shall remain in effect unless revoked with the approval of the Franchise Tax Board.

(2) Membership in a commonly controlled group shall be treated as terminated in any year, or fraction thereof, in which the conditions of subdivision (b) are not met, except as follows:

(A) When stock of a corporation is sold, exchanged, or otherwise disposed of, the membership of a corporation in a commonly controlled group shall not be terminated, if the requirements of subdivision (b) are again met immediately after the sale, exchange, or disposition.

(B) The Franchise Tax Board may treat the commonly controlled group as remaining in place if the conditions of subdivision (b) are again met within a period not to exceed two years.

(d) A taxpayer may exclude some or all corporations included in a “commonly controlled group” by reason of paragraph (4) of subdivision (b) by showing that those members of the group are not controlled directly or indirectly by the same interests, within the meaning of the same phrase in Section 482 of the Internal Revenue Code. For purposes of this subdivision, the term “controlled” includes any kind of control, direct or indirect, whether legally enforceable, and however exercisable or exercised.

(e) Except as otherwise provided, stock is “owned” when title to the stock is directly held or if the stock is constructively owned.

(1) An individual constructively owns stock that is owned by any of the following:

(A) His or her spouse.

(B) Children, including adopted children, of that individual or the individual’s spouse, who have not attained the age of 21 years.

(C) An estate or trust, of which the individual is an executor, trustee, or grantor, to the extent that the estate or trust is for the benefit of that individual’s spouse or children.

(2) Stock owned by a corporation, or a member of a controlled group of which the corporation is the parent corporation, is constructively owned by any shareholder owning stock that represents more than 50 percent of the voting power of the corporation.

(3) Stock owned by a partnership is constructively owned by any partner, other than a limited partner, in proportion to the partner’s capital interest in the partnership. For this purpose, a partnership is treated as owning proportionately the stock owned by any other partnership in which it has a tiered interest, other than as a limited partner.

(4) In any case where a member of a commonly controlled group, or shareholders, officers, directors, or employees of a member of a commonly controlled group, is a general partner in a limited partnership, stock held by the limited partnership is constructively owned by a limited partner to the extent of its capital interest in the limited partnership.

(f) For purposes of this section, each of the following shall apply:

(1) “Corporation” means a subchapter S corporation, any other incorporated entity, or any entity defined or treated as a corporation pursuant to Section 23038 or 23038.5.

(2) “Person” means an individual, a trust, an estate, a qualified employee benefit plan, a limited partnership, or a corporation.

(3) “Voting power” means the power of all classes of stock entitled to vote that possess the power to elect the membership of the board of directors of the corporation.

(4) “More than 50 percent of the voting power” means voting power sufficient to elect a majority of the membership of the board of directors of the corporation.

(5) “Stock representing voting power” includes stock where ownership is retained but the actual voting power is transferred in either of the following manners:

(A) For one year or less.

(B) By proxy, voting trust, written shareholder agreement, or by similar device, where the transfer is revocable by the transferor.

(g) The Franchise Tax Board may prescribe any regulations as may be necessary or appropriate to carry out the purposes of this section, including, but not limited to, regulations that do the following:

(1) Prescribe terms and conditions relating to the election described by subdivision (c), and the revocation thereof.

(2) Disregard transfers of voting power not described by paragraph (5) of subdivision (f).

(3) Treat entities not described by paragraph (2) of subdivision (f) as a person.

(4) Treat warrants, obligations convertible into stock, options to acquire or sell stock, and similar instruments as stock.

(5) Treat holders of a beneficial interest in, or executor or trustee powers over, stock held by an estate or trust as constructively owned by the holder.

(6) Prescribe rules relating to the treatment of partnership agreements which authorize a particular partner or partners to exercise voting power of stock held by the partnership.

(h) This section shall apply to taxable years beginning on or after January 1, 1995.

(Amended by Stats. 2000, Ch. 862, Sec. 215. Effective January 1, 2001.)

Historical
Since Health Care Reform pretty much wipes out Management Carve Outs and AB 1083 replaces AB 1672

Management Carve Outs where you only cover the owners & managers, NOT employees, and is not guaranteed issue, under AB 1672 but is subject to Underwriting and it very restricted under Health Reform.

CA Insurance Code Small Group Health Insurance  §10700 w 1(AB 1672)  Historical Definition Small Employer

Please send us your DE 6 or 9 Employer SDI reporting and relevant documents for help in determining how you can qualify for Guaranteed issue Medical coverage under   AB 1672 Small Group Health Care Reform.  Also, let us know how many of the employees you want to cover and we can see if it works.

A group being affiliated or controlled can be an advantage to employer’s wanting more coverage or might be considered a disadvantage for those who want to minimize their benefit costs and ability to do Management Carve Outs.

Employer Companies that are affiliated companies (common ownership)  and that are eligible to file a combined income tax return for purposes of state taxation shall be considered one employer. CA Insurance Code  §10700 w 1

Blue Cross Virginia – Definition Common Ownership

Attorney’s  Explanation See the benefits.com 1994 Archived

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