Academic journal article Journal of Accountancy

Family Affairs

Academic journal article Journal of Accountancy

Family Affairs

Article excerpt


The provisions of the Internal Revenue Code dealing with family attribution and aggregation are a complex maze. Because many of them contain different definitions of who is considered part of a "family," taxpayers who own or work for businesses that involve other family members are particularly affected. Taxpayers easily can run afoul of these provisions, with unexpected (and sometimes disastrous) tax results.


These are corporations commonly owned as brother-sister entities, which means five or fewer individuals own at least 80% of the outstanding stock's value and there is more than 50% common ownership. If companies are considered part of such a group, they will be aggregated for purposes of determining how the lower tax brackets on income below $100,000 may be used, if the uniform capitalization rules must be met and whether qualified plans meet benefits tests' coverage and provision requirements.

In determining common ownership, certain family members (for example, husbands and wives working inthe same business) are treated as a single individual. Children and grandchildren also may be aggregated with parents and grandparents, but different rules apply, depending on whether the descendant is under or over age 21.


To avoid discrimination in favor of highly compensated individuals, husbands, wives and lineal descendants under the age of 19 working in the same business are aggregated for purposes of determining certain limits on qualified plans' contributions and benefits. Section 401(k) plans have similar rules that, however, limit the amount that may be deferred from a family business owner's compensation as a percentage of the deferral for the nonhighly compensated employees.

A husband and wife sometimes can control their relative compensation so as to maximize plan contributions. However, doing so may increase overall payroll taxes and subject these amounts to Internal Revenue Service scrutiny for reasonableness.


Special rules affect the use of the installment method when the buyer and seller are members of the same family or commonly controlled entities or include individuals and their controlled entities. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.