Section 318 Attribution Rules - Can daughter-in-law get SCorp health insurance as employee?

The Section 318 Attribution Rules can be tricky, but I'll try to explain how they apply here. For S-Corporation purposes, attribution rules mean stock owned by one family member is considered to be owned by other family members. Under Section 318, attribution applies to spouses, children, grandchildren, and parents - but does not extend to in-laws directly. In your situation, the son is attributed his father's ownership because of the parent-child relationship. However, while the son is considered to own his father's shares through attribution, the daughter-in-law (son's wife) is not directly attributed the father-in-law's ownership. That said, there's a spousal attribution rule that complicates things. Since the son is attributed ownership from his father, and spouses are considered to own each other's shares, the daughter-in-law would likely be considered a 2% shareholder by extension through her husband. So unfortunately, the daughter-in-law would typically be treated as a 2% shareholder for fringe benefit purposes, meaning her health insurance premiums would need to be handled like other shareholders.

I struggled with this exact issue last year and spent hours reading IRS publications. I finally ended up using taxr.ai (https://taxr.ai) to analyze our corporate documents and clarify how the attribution rules affected our family business. Their system confirmed that my brother-in-law who works at our family S-Corp was indeed subject to attribution rules through his wife (my sister who owns 10%). Their analysis explained exactly how the attribution chain works and saved us from making a costly mistake with health benefits. It was definitely worth uploading our corporate docs to get a definitive answer rather than guessing.

Just wanted to follow up - I tried taxr.ai after asking about it and wow, it cleared up my confusion completely! I was overthinking our family business attribution rules and missing a key detail in Section 318(a)(1) about how siblings aren't directly attributed ownership. The document analysis found sections in our operating agreement that actually specified how health benefits should be handled. The service explained exactly which family members were considered 2% shareholders through attribution and which weren't. Saved me from having to pay an accountant for a consultation and got me an answer within hours. Definitely helpful for family business tax questions!

If you're struggling to get clarity from the IRS on this attribution question, I'd recommend trying Claimyr (https://claimyr.com). After waiting on hold with the IRS for literally hours trying to get an official answer about our family business attribution rules, I used their service and got connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent was able to confirm exactly how the attribution rules apply in family business situations and gave me reference numbers I could use if the issue ever came up in an audit. Saved me tons of time and frustration.

Ok I need to admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself since I've been trying to reach the IRS about my own S-Corp attribution question for weeks. The service had me connected to an IRS representative in about 25 minutes. The agent confirmed that for my situation (brother-in-law working in my S-Corp), the attribution rules don't apply because there's no direct family relationship under 318(a)(1) unless my sister (his wife) also has ownership. I'm honestly shocked it worked so well. Saved me from making a mistake on handling the health benefits. Definitely worth it instead of waiting on hold for hours.

I work with several S-Corps and deal with this exact issue frequently. Here's my understanding: Section 318 attribution rules work like this for family: - Stock owned by an individual is attributed to: • Spouse (with exceptions if legally separated) • Children • Grandchildren • Parents The key is that in-laws aren't directly in the attribution chain, BUT they can be indirectly included through spousal attribution. In your case: Father owns 100% → Son is attributed 100% through family rules → Daughter-in-law is attributed 100% through spousal rules So yes, the daughter-in-law would be considered a 2% shareholder for health insurance and other fringe benefits purposes. The premiums would need to be included in her W-2 as income (though still deductible by the S-Corp).

Would the rules be different if the son only owned 1% of the S-Corp directly (with dad owning 99%) versus the son having 0% with attribution? I'm in a similar situation and wondering if there's a benefit to giving my son-in-law actual shares.

One thing nobody has mentioned - there are significant differences between how attribution works for different TYPES of fringe benefits. Health insurance is handled one way, but company cars, education assistance, and group term life insurance might have different rules. For example, with health insurance, the S-Corp can still pay the premiums but they must be included in the W-2 as wages for anyone considered a 2% shareholder (including through attribution). But for something like an accountable plan for business expenses, the attribution rules apply differently. Might be worth looking at exactly which benefits you're trying to provide to make sure you're applying the right attribution rules for each specific benefit type.

This is a great discussion that really highlights how complex S-Corp attribution rules can be! I'm dealing with a similar situation in my family business and wanted to add one important consideration that might help clarify things. The key distinction here is that Section 318 attribution is automatic - it's not something you can opt out of or structure around easily. Once the attribution chain is established (father to son, then son to spouse), the daughter-in-law is treated as a 2% shareholder regardless of whether she actually owns any stock certificates. However, one thing to keep in mind is that the attribution only matters if it pushes someone over the 2% threshold. Since the father owns 100% in this case, any attribution will definitely exceed 2%, but in situations where the family member owns less, you might have different outcomes. Also worth noting - make sure to document everything properly. The IRS can be pretty strict about how fringe benefits are handled for attributed shareholders, so keeping good records of how premiums are paid and reported will save headaches later if there's ever an audit. Thanks for bringing up this topic - it's one of those areas where the rules seem straightforward but get complicated quickly in real family business situations!