Bill Proposed to Amend Family Attribution Rules

Senator Mark Kelly (D-AZ) and co-sponsor Senator Bill Cassidy (R-LA) have introduced S. 5125 the Family Attribution Modernization Act. The proposal would modify controlled group rules under IRC 414(b) pertaining to family attribution as follows:

  • Community property laws shall be disregarded for purposes of determining ownership
  • Stock owned by minor children of the spouse under IRC 1563(e)(6) is not attributed when the exception to spousal attribution also applies under IRC 1563(e)(5). This generally occurs if the spouse – 1) does not directly own stock, 2) is not a director or employee, 3) no more than 50% of company earnings are derived from royalties, rent, dividends, etc., and 4) spousal rights to dispose of stock are not restricted or run in favor of minor children
  • Stock owned in different corporations that is attributed to a child under section 1563(e)(6)(A) from each parent, and is not attributed to such parents as spouses under section 1563(e)(5), shall not by itself result in the corporations being a controlled group

To the extent these proposed changes result in a change in controlled group status, the transition rules under IRC 410(b)(6)(C) would apply. The disregarding of community property laws would apply under IRC 414(m) for affiliated service groups as well.