West Virginia Code of State Rules
Agency 110 - Tax
Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT
Series 110-13C - Business Investment And Jobs Expansion Tax Credit, Corporation Headquarters Relocation Tax Credit, Sma
Section 110-13C-15 - Definition of controlled group of corporations
Current through Register Vol. XLI, No. 38, September 20, 2024
15.1. In general. - For purposes of W. Va. Code '11-13C-14 and the regulations thereunder, the term "controlled group of corporations" means any group of corporations which is either a "parent-subsidiary controlled group" (as defined in paragraph 15.2), a "brother- sister controlled group" (as defined in paragraph 15.3), or a "combined group" (as defined in paragraph 15.4). For the exclusion of certain stock for purposes of applying these definitions, see Section 15A of these regulations.
15.2. Parent-subsidiary controlled group. - The term "parent-subsidiary controlled group" means one or more chains of corporations connected through stock ownership with a common parent corporation if stock possessing at least fifty percent (50%) of the combined voting power of all classes of stock entitled to vote or at least fifty percent (50%) of the total value of shares of all classes of stock of each corporation (except the stock of the common parent corporation) is owned (directly or indirectly) by one or more of the other corporations; and the common parent corporation owns (directly or indirectly) stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or at least fifty percent (50%) of the total value of shares of all classes of stock of at least one of the other corporations (excluding, in computing such voting power or value, stock owned directly by such other corporations). This definition of a parent-subsidiary controlled group of corporations is illustrated by the following examples:
Example (1). P Corporation owns stock possessing fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote of S Corporation. P is the common parent of a parent-subsidiary controlled group consisting of member corporations P and S.
Example (2). Assume the same facts as in example (1). Assume further that S owns stock possessing fifty percent (50%) of the total value of shares of all classes of stock of T Corporation. P is the common parent of a parent-subsidiary controlled group consisting of member corporations P, S, and T. The result would be the same if P, rather than S, owned the T stock.
Example (3). L Corporation owns eighty percent (80%) of the only class of stock of M Corporation and M, in turn, owns forty percent (40%) of the only class of stock of O corporation. L also owns fifty percent (50%) of the only class of stock of N Corporation and N, in turn, owns forty percent (40%) of the only class of stock of O. L is the common parent of a parent-subsidiary controlled group consisting of member corporations L, M, N, and O.
Example (4). X Corporation owns seventy-five percent (75%) of the only class of stock of Y and Z Corporations; Y owns all the remaining stock of Z; and Z owns all the remaining stock of Y. Since intercompany stockholdings are excluded (that is, are not treated as outstanding) for purposes of determining whether X owns stock possessing at least fifty percent (50%) of the voting power or value of at least one of the other corporations, X is treated as the owner of stock possessing one hundred percent (100%) of the voting power and value of Y and of Z for purposes of this paragraph. Also, stock possessing one hundred percent (100%) of the voting power and value of Y and Z is owned by the other corporations in the group within the meaning of this paragraph. (X and Y together own stock possessing one hundred percent (100%) of the voting power and value of Z, and X and Z together own stock possessing one hundred percent (100%) of the voting power and value of Y.) Therefore, X is the common parent of a parent- subsidiary controlled group of corporations consisting of member corporations X, Y and Z.
15.3. Brother-sister controlled group. - The term "brother-sister controlled group" means two or more corporations if the same five or fewer persons who are individuals, estates, or trusts own (directly or indirectly) singly or in combination, stock possessing at least fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or at least fifty percent (50%) of the total value of shares of all classes of stock of each corporation; and more than fifty percent (50%) of the total combined voting power of all classes of stock entitled to vote or more than fifty percent (50%) of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation. This definition of a brother-sister controlled group of corporations is illustrated by the following examples:
Example (1). The outstanding stock of corporations P, Q, R, S, and T, which have only one class of stock outstanding, is owned by the following unrelated individuals:
|
Corporations |
||||||
|
Individuals |
P |
Q |
R |
S |
T |
Identical Ownership |
|
A |
60% |
60% |
60% |
60% |
100% |
60% |
|
B |
40% |
|||||
|
C |
40% |
|||||
|
D |
40% |
|||||
|
E |
40% |
|||||
|
Total |
100% |
100% |
100% |
100% |
100% |
100% |
Corporations P, Q, R, S, and T are members of a brother-sister controlled group.
Example (2). The outstanding stock of corporations U and V, which have only one class of stock outstanding, is owned by the following unrelated individuals:
|
Individuals |
Corporations |
Identical Ownership |
|
|
U |
V |
||
|
F |
5% |
... |
... |
|
G |
10% |
... |
... |
|
H |
10% |
... |
... |
|
I |
20% |
... |
... |
|
J |
55% |
55% |
55% |
|
K |
... |
10% |
... |
|
L |
... |
10% |
... |
|
M |
... |
10% |
... |
|
N |
... |
10% |
... |
|
O |
... |
5% |
... |
|
____ |
____ |
____ |
|
|
TOTAL |
100% |
100% |
55% |
Corporations U and V are members of a brother-sister controlled group because at least fifty percent (50%) of the stock of each corporation is owned by the same five (5) or fewer persons.
15.4. Combined group. - The term "combined group" means any group of three (3) or more corporations, if each corporation is a member of either a parent-subsidiary controlled group of corporations or a brother-sister controlled group of corporations, and at least one of such corporations is the common parent of a parent-subsidiary controlled group and also is a member of a brother-sister controlled group. This definition of a combined group of corporations is illustrated by the following examples:
Example (1). Smith, an individual, owns stock possessing 80 percent of the total combined voting power of all classes of the stock of corporations X and Y. Y, in turn, owns stock possessing 80 percent of the total combined voting power of all classes of the stock of corporation Z. Since --
Example (2). Assume the same facts as in example (1), and further assume that corporation X owns eighty percent (80) of the total value of shares of all classes of stock of corporation T. X, Y, and Z, and T are members of the same combined group.
15.5. Voting power of stock. - For purposes of paragraph 3.7, in determining whether the stock owned by a person (or persons) possesses a certain percentage of the total combined voting power of all classes of stock entitled to vote of a corporation, consideration will be given to all the facts and circumstances of each case. A share of stock will generally be considered as possessing the voting power accorded to such share by the corporate charter, by-laws, or share certificate. On the other hand, if there is any agreement, whether express or implied that a shareholder will not vote his stock in a corporation, the formal voting rights possessed by his stock may be disregarded in determining the percentage of the total combined voting power possessed by the stock owned by other shareholders in the corporation, if the result is that the corporation becomes a component member of a controlled group of corporations. Moreover, if a shareholder agrees to vote his stock in a corporation in the manner specified by another shareholder in the corporation, the voting rights possessed by the stock owned by the first shareholder may be considered to be possessed by the stock owned by such other shareholder if the result is that the corporation becomes a component member of a controlled group of corporations.
15.6. Component member.
Example (1). Brown, an individual, owns all of the stock of corporations W and X on each day of 1990. W and X each uses the calendar year as its taxable year. On January 1, 1990, Brown also owns all the stock of corporation Y (a fiscal year corporation with a taxable year beginning on July 1, 1990 and ending on July 30, 1991), which stock he sells on October 15, 1990. On December 1, 1990, Brown purchases all the stock of corporation Z (a fiscal year corporation with a taxable year beginning on September 1, 1990, and ending on August 31, 1991). On December 31, 1990, W, X, and Z are members of the same controlled group. However, the component members of the group on such December 31 are W, X, and Y. Under subparagraph 15.6.2.1, of this paragraph, Z is treated as an excluded member of the group on December 31, 1990, since Z was a member of the group for less than one-half of the number of days (twenty-nine (29) out of one hundred twenty-one (121) days) during the period beginning on September 1, 1990 (the first day of its taxable year) and ending on December 30, 1990. Under subparagraph 15.6.3.2, Y is treated as an additional member of the group on December 31, 1990, since Y was a member of the group for at least one-half of the number of days (one hundred seven (107) out of one hundred eighty-three (183) days) during the period beginning on July 1, 1990 (the first day of its taxable year) and ending on December 30, 1990.
Example (2). On January 1, 1990, corporation P owns all the stock of corporation S, which in turn owns all the stock of corporation S-1. On November 1, 1990, P purchases all the stock of corporation X from the public and sells all of the stock of S to the public. corporation X owns all the stock of corporation Y during 1990. P, S, S-1, X and Y file their returns on the basis of the calendar year. On December 31, 1990, P, X, and Y are members of a parent-subsidiary controlled group of corporations; also, corporations S and S-1 are members of a different parent-subsidiary controlled group of corporations; on such date. However, since X and Y have been members of the parent-subsidiary controlled group of which P is the common parent for less than one-half the number of days during the period January 1 through December 30, 1990, they are not component members of such group on such date. On the other hand, X and Y have been members of a parent-subsidiary controlled group of which X is the common parent for at least one-half the number of days during the period January 1 through December 30, 1990. Also since S and S-1 were members of the parent-subsidiary controlled group of which P is the common parent for at least one-half the number of days in the taxable years of each such corporation during the period January 1 through December 30, 1990, P, S, and S-1 are component members of such group on December 31, 1990.
Example (3). Throughout 1990, corporation M owns all the stock of corporation F which, in turn, owns all the stock of corporations L-1, L-2, X, and Y. M is a domestic mutual insurance company subject to taxation under I.R.C. '821, F is a foreign corporation not engaged in trade or business within the United States, L-1 and L-2 are domestic life insurance companies subject to taxation under I.R.C. '802, and X and Y are domestic corporations subject to West Virginia Corporation Net Income Taxes. Each corporation uses the calendar year as its taxable year. On December 31, 1990, M, F, L-1, L-2, X, and Y are members of a parent-subsidiary controlled group of corporations. However, under subparagraph 15.6.2.1.4, M, F, L-1, and L-2 are treated as excluded members of the group on December 31, 1990. Thus, on December 31, 1990, the component members of the parent-subsidiary controlled group of which P is the common parent include only X and Y. Furthermore, since subparagraph 15.6.2.1.4 does not result in L-1 and L-2 being treated as excluded members of an insurance group, L-1 and L-2 are component members of an insurance group on December 31, 1990.
15.7. Overlapping groups.
Example (1). On each day of 1990 all the outstanding stock of corporations M, N, and P is held in the following manner:
|
Individuals |
Corporations |
||
|
M |
N |
P |
|
|
A |
60% |
40% |
0 |
|
B |
40% |
20% |
40% |
|
C |
0 |
40% |
60% |
Since the more-than-50-percent stock ownership requirement is met with respect to corporations M and N and with respect to corporations N and P, but not with respect to corporations M, N, and P, corporation N would, without the application of this subparagraph, be a component member on December 31, 1990, of overlapping groups consisting of M and N and of N and P. If N does not file an election in accordance with this subsection, the Tax Commissioner will determine the group in which N is to be included.
Example (2). On each day of 1990, all the outstanding stock of corporations S, T, W, X, and Z is held in the following manner:
|
Individuals |
Corporations |
||||
|
S |
T |
W |
X |
Z |
|
|
D |
60% |
60% |
60% |
60% |
60% |
|
E |
40% |
0 |
0 |
0 |
0 |
|
F |
0 |
40% |
0 |
0 |
0 |
|
G |
0 |
0 |
40% |
0 |
0 |
|
H |
0 |
0 |
0 |
40% |
0 |
|
I |
0 |
0 |
0 |
0 |
40% |
On December 31, 1990, the more-than-fifty-percent (50%) stock ownership requirement may be met with regard to any combination of the corporations but all five (5) corporations cannot be included as component members of a single controlled group because the inclusion of all the corporations in a single group would be dependent upon taking into account the stock ownership of more than five (5) persons. Therefore, if the corporations do not file a statement in accordance with subdivision 15.7.2.3, the Tax Commissioner will determine the group in which each corporation is to be included. The corporations or the Tax Commissioner, as the case may be, may designate that three (3) corporations be included in one group and two (2) corporations in another, or that any four corporations be included in one group and that the remaining corporation not be included in any group.
