Reform of family attribution rules

(a) Controlled groups Section 414(b) of the Internal Revenue Code of 1986 is amended— (1) by striking For purposes of and inserting the following: (1) In general For purposes of, and (2) by adding at the end the following new paragraphs: (2) Special rules for applying family attribution For purposes of applying the attribution rules under section 1563 with respect to paragraph (1), the following rules apply: (A) Community property laws shall be disregarded for purposes of determining ownership. (B) Except as provided by the Secretary, stock of an individual not attributed under section 1563(e)(5) to such individual’s spouse shall not be attributed to such spouse by reason of section 1563(e)(6)(A). (C) Except as provided by the Secretary, in the case of stock 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), such attribution to the child shall not by itself result in such corporations being members of the same controlled group. (3) Plan shall not fail to be treated as satisfying this section If the application of paragraph (2) causes two or more entities to be a controlled group, or to no longer be in a controlled group, such change shall be treated as a transaction to which section 410(b)(6)(C) applies.. (b) Affiliated service groups Section 414(m)(6)(B) of such Code is amended— (1) by striking Ownership. —In determining and inserting the following: Ownership.— (i) In general In determining; and (2) by adding at the end the following new clauses: (ii) Special rules for applying family attribution For purposes of applying the attribution rules under section 318 with respect to clause (i), the following rules apply: (I) Community property laws shall be disregarded for purposes of determining ownership. (II) Except as provided by the Secretary, stock of an individual not attributed under section 318(a)(1)(A)(i) to such individual’s spouse shall not be attributed by reason of section 318(a)(1)(A)(ii) to such spouse from a child who has not attained the age of 21 years. (III) Except as provided by the Secretary, in the case of stock in different corporations that is attributed under section 318(a)(1)(A)(ii) to a child who has not attained the age of 21 years from each parent, and is not attributed to such parents as spouses under section 318(a)(1)(A)(i), such attribution to the child shall not by itself result in such corporations being members of the same affiliated service group. (iii) Plan shall not fail to be treated as satisfying this section If the application of clause (ii) causes two or more entities to be an affiliated service group, or to no longer be in an affiliated service group, such change shall be treated as a transaction to which section 410(b)(6)(C) applies.. (c) Effective date The amendments made by this section shall apply to plan years beginning on or after the date of the enactment of this Act.