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Secure 2.0 Updates Family Attribution Rules For Aggregation of Businesses

In today’s post, we want to highlight two important ownership attribution rule changes for aggregation of businesses made by the SECURE 2.0 Act of 2022 (referred to as “SECURE 2.0”), which was signed into law by President Biden on December 29, 2022. These rule changes are effective starting in 2024 and apply to ownership attribution for determination of both controlled groups under Internal Revenue Code (“IRC”) §414(b) (which references IRC §1563) and affiliated service groups under IRC §414(m) (which references IRC §318).

Community Property Rules

Under current law, in states where community property rules apply, even if spouses separately own 100% of their separate businesses, each spouse would be considered to own the other spouse’s separate business, and the businesses would be considered related. On the other hand, in states where the community property rules do not apply, those businesses would not be considered related if they meet the noninvolvement exception to spousal attribution under IRC §1563€(5) or are not considered to directly or indirectly own stock under IRC §318(a)(1)(A)(i). Under current law, businesses located in states where community property rules apply are unable to benefit from the noninvolvement exception. Starting in 2024, the new rules disregard community property laws for purposes of determining ownership and result in equitable treatment such that businesses in community property states will now be able to utilize the noninvolvement exception in the case of controlled group attribution or avoid direct ownership in the case of affiliated service group attribution.

Attribution to Minor Child

SECURE 2.0 also made changes to rules regarding attribution to children. Under current law, if parents of a minor child (under age 21) separately own 100% of their separate businesses, the businesses would still be considered related solely because the parents have a minor child together. This outcome holds true regardless of the parents’ marital status. SECURE 2.0 fixes this presumably unintended consequence by providing that two businesses will not be considered related solely because stock owned by the parents is attributed to a minor child. In other words, if spousal attribution does not apply, attribution of ownership to the child will not by itself cause the creation of a controlled or affiliated service group.

Key Takeaways

Businesses should review controlled and affiliated service group status and ownership to determine whether that status will change in 2024. If employers become related or unrelated due to the updated rules, plans sponsored by them will have a transition relief period for coverage testing in the year of the change and the following plan year as provided in IRC §410(b)(6)(C). Employers should work with their ERISA counsel and service providers to review what impact these new rules will have on their plan operations, nondiscrimination testing, and Form 5500 filing status.

Our attorneys can help you navigate this complex and evolving area of law. Please contact a Boutwell Fay attorney at for more information.

Please join Boutwell Fay's Alison Fay and Katrina Veldkamp, for a more in-depth look at Secure 2.0 in their upcoming webinar: SECURE 2.0 – A Closer Look at Long-term Part Time Employees, Matching Student Loans, and Related Employer Attribution, Tuesday, March 28th from 10 AM - 10:30 AM PT.

You can register by clicking the button below.


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