Controlled Group Issues for Sole Proprietorship and Corporation (Posted October 22, 2002) Technical Tip 83: The following question and answer were from the IRS Q&A Session at the 2001 ASPPA Annual Conference: We know that 415(h) only applies through 1563(a)(1)--Parent-Sub-controlled groups--and not through 1563(a)(2)--Brother-Sister controlled groups. Which category (Parent-Sub or Brother-Sister) would the following fact pattern fit into? Individual A, has a sole proprietorship and also owns 70% of a corporation. If the "sole proprietorship" is deemed to own the corporation, then it looks like a Parent-Sub (as defined by 415(h)). However, if the individual owns both the sole prop and the corporate stock, it looks like a Brother-Sister. Response: Without regulations on this issue, the answer is unclear. However, it would appear appropriate that an individual should not be penalized for the form of business; if incorporated, this would be a Brother-Sister controlled group. Therefore, we should most likely treat this as a Brother-Sister controlled group. Comment by RLR&C ERISA Attorneys: Code section 415(h) changes the control percentage for purposes of the parent-subsidiary test but not the brother-sister relationship test. This is important because it affects which employers must be aggregated in applying the limitations of Code section 415. The normal common control requirement under Code section 1563(a)(1) is an 80% test. This is reduced for 415 purposes to a 50% test in the case of a parent-sub relationship but remains at 80% in the case of a brother-sister relationship. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.