A collective of entities connected through ownership constitutes a specific arrangement under tax regulations. These entities, though possibly operating independently, are linked by shared control, typically defined by specific levels of ownership held by the same individuals or organizations. For instance, if five or fewer individuals possess more than 50% of the ownership in multiple businesses, these businesses may be categorized under this arrangement.
This arrangement is significant in various areas of tax law, influencing eligibility for certain tax benefits, determining deduction limitations, and impacting compliance requirements. Historically, these provisions were implemented to prevent the artificial division of a single business operation into multiple entities to gain undue tax advantages. Understanding the implications of this classification is crucial for businesses to ensure compliance and optimize their tax strategies.