Understanding the Controlled Group of Corporations: Key Legal Insights

Q: How does a controlled group affect taxes?

Being part of a controlled group can affect tax rates, deductions, and credits available to the corporations involved.

Q: Can small businesses be part of a controlled group?

Yes, any qualifying group of corporations, regardless of size, can be considered a controlled group.

Q: What should I do if I think my corporation is part of a controlled group?

Review your ownership structure and consult with a tax professional for guidance.

Q: Are there legal forms I can use for controlled group matters?

Yes, US Legal Forms provides templates that can help with related documentation.

Definition & Meaning

A controlled group of corporations refers to a collection of corporations that are linked through stock ownership. This term is primarily used in tax law to determine how corporations are treated for tax purposes. There are three main types of controlled groups:

Parent-subsidiary controlled group: This includes one or more chains of corporations with a common parent corporation, where the parent owns at least 80 percent of the voting power or value of shares of the subsidiaries.
Brother-sister controlled group: This consists of two or more corporations where five or fewer individuals, estates, or trusts own more than 50 percent of the voting power or value of shares in each corporation.
Combined group: This includes three or more corporations that are part of both a parent-subsidiary and a brother-sister controlled group.

Table of content

Legal Use & context

The term "controlled group of corporations" is often used in tax law, particularly in determining tax liabilities and benefits for corporations. Understanding whether a group of corporations qualifies as a controlled group can affect tax rates, deductions, and credits. This term is relevant in various legal areas, including corporate law and tax law. Users can manage related forms and procedures using templates available through US Legal Forms, which are drafted by qualified attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Here are a couple of examples of controlled groups:

Example 1: A corporation, Company A, owns 90 percent of Company B and 85 percent of Company C. In this case, Companies B and C are part of a parent-subsidiary controlled group with Company A as the parent.
Example 2: Five individuals collectively own 60 percent of Company D and 70 percent of Company E. Since the same individuals own more than 50 percent of both companies, they form a brother-sister controlled group. (hypothetical example)

Relevant laws & statutes

The primary statute governing controlled groups of corporations is found in the Internal Revenue Code, specifically:

26 U.S.C. § 1563: This section outlines the definitions and rules related to controlled groups for tax purposes.

Comparison with related terms

Term	Definition
Controlled Group of Corporations	A group of corporations connected through stock ownership, defined by specific ownership thresholds.
Affiliated Corporations	Corporations that are related through common ownership but do not meet the strict criteria of controlled groups.
Consolidated Tax Return	A tax return that combines the income and expenses of a controlled group of corporations.

Common misunderstandings

What to do if this term applies to you

If you believe your corporation is part of a controlled group, consider the following steps:

Review your ownership structure to determine if it meets the criteria for a controlled group.
Consult with a tax professional or attorney to understand the implications for your tax obligations.
Explore US Legal Forms for templates that can help you manage related documentation and compliance.

Find the legal form that fits your case

Browse our library of 85,000+ state-specific legal templates.

This field is required

Quick facts

Attribute	Details
Ownership Threshold	At least 80 percent for parent-subsidiary, more than 50 percent for brother-sister.
Legal Area	Tax law, corporate law.
Key Statute	26 U.S.C. § 1563.

Key takeaways

A controlled group of corporations is defined by specific ownership criteria.
There are different types of controlled groups: parent-subsidiary, brother-sister, and combined groups.
Understanding your corporation's status can significantly impact tax obligations.
Consulting with professionals can help navigate the complexities of controlled groups.
US Legal Forms offers resources to assist with related legal documentation.

Frequently asked questions

What is a controlled group of corporations?

A controlled group of corporations is a collection of corporations linked by ownership that meet specific criteria defined in tax law.