They say you don’t always get to choose your family, and the same holds true with family attribution rules.
Understanding a company’s ownership is vital for accurate nondiscrimination and top-heavy testing. Ownership is a principal factor when determining the highly compensated employees (HCEs) and key employees when running these tests.
While it may be easy to spot the employees who have direct ownership, it’s important to understand that some family members also have an indirect ownership, called attribution. Under the attribution rules, certain family members are considered “own” the same interest; effectively making them an owner without any actual ownership.
In general, Section 318 of the Internal Revenue Code says an individual shall be considered as owning the stock owned, directly or indirectly, by or for his spouse and his children, grandchildren, and parents.