What Exactly Is a ‘Closely Held’ Corporation?


With its 5-4 decision in favor of Hobby Lobby on Monday morning, the Supreme Court handed down what’s being described as a “narrow” ruling that says “closely held” corporations cannot be compelled to extend contraceptive coverage in employer health insurance.

The question on everyone’s mind: What on earth is a “closely held” corporation?

Allow the Internal Revenue Service to describe:

Generally, a closely held corporation is a corporation that:

  • Has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals at any time during the last half of the tax year; and
  • Is not a personal service corporation.
  • The definitions for the terms “directly or indirectly” and “individual” are in Publication 542, Corporations.

    A closely held corporation is subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to corporate officers.

    Following the high court’s ruling, the Wall Street Journal listed off a few “closely held” companies that will likely follow through on the decision and discontinue contraceptive coverage:

    Atlas Machine and Supply Inc., an industrial machinery and engineering company with headquarters in Louisville, Ky., used to cover some forms of contraception for employees, but not the so-called morning-after pill, which some people consider a form of abortion. In January, when the Affordable Care Act went into effect, the company started paying for the drug, despite misgivings from president and owner Rich Gimmel, who is an evangelical Christian.

    […] Hastings Automotive Inc. and Hastings Chrysler Center Inc., a pair of Minnesota car dealerships that employ an ordained pastor and offer employees a voluntary leadership training program that cites the bible and Jesus Christ, have been covering employees’ morning-after pills and intrauterine devices for months, according to the company’s lawyer. Doug Erickson, the company’s president, said he is eager to halt the benefit.

    […] Frank O’Brien is the managing partner of St. Louis-based O’Brien Industrial Holdings LLC, which owns companies that make products for chemical plants, power plants and refineries. Company offices feature statues and pictures of Christ and “the Lord” is cited in its mission statement.

    […] Weingartz Inc., which sells lawn mowers and tractors at five retail shops in Michigan, also hadn’t been paying for birth control pills, intrauterine devices or morning after pills, following a lawsuit and injunction. Keeping a close eye on the high court’s decision, President Dan Weingartz said he was weighing yanking health care coverage altogether, paying a fine of $2,000 per employee a year, if the ruling hadn’t gone his way.

    While we’re on the subject of the Hobby Lobby case, here’s a helpful guide to conservative pundits gloating over the decision, and liberal pundits wallowing.

    [Image via Shutterstock]

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