26 U.S.C. § 544 — Rules for determining stock ownership
submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 647 words · no verdicts yet
This section gives rules for deciding who is treated as owning corporate stock when determining personal holding company status. It also explains when convertible securities are counted as stock.
(a) For deciding whether a corporation* is a personal holding company under the cited stock*-ownership rules: (1) Stock held directly or indirectly by a corporation, partnership*, estate, or trust is treated as held proportionally by its shareholders*, partners, or beneficiaries. (2) An individual is treated as owning stock held by the individual’s family or partner*. “Family” here means only brothers and sisters, whether half or whole blood, a spouse, ancestors, and lineal descendants. (3) Stock that a person has an option to acquire is treated as owned by that person. An option to acquire an option, and every option in a series, counts as an option to acquire the stock. (4) The family and option rules in paragraphs (2) and (3) apply to the section 542(a)(2) ownership requirement only when their effect makes the corporation a personal holding company. They apply to sections 543(a)(7), (a)(6), and (a)(4) only when their effect makes the amounts covered by those provisions includible as personal holding company income. (5) Stock treated as owned under paragraph (1) or (3) is treated as actually owned for applying paragraph (1) or (2). But stock attributed to an individual under paragraph (2) is not treated as owned by that individual again to attribute it to someone else under paragraph (2). (6) If stock could be treated as owned under either paragraph (2) or (3), it is treated as owned under paragraph (3).
(b) Outstanding securities convertible into stock count as outstanding stock, even if they cannot be converted during the taxable year*, only for the purposes and only under the conditions in paragraphs (1) through (4): they may count for section 542(a)(2) only if including all such securities makes the corporation a personal holding company; and they may count for sections 543(a)(7), (a)(6), and (a)(4) only if including all makes the relevant amounts includible as personal holding company income. If securities have different conversion dates, the class with the earlier date may be included without the later class. But no convertible securities may be included unless all outstanding securities with an earlier conversion date are also included.
For purposes of determining whether a corporation* is a personal holding company, insofar as such determination is based on stock* ownership under section 542(a)(2), section 543(a)(7), section 543(a)(6), or section 543(a)(4)—
Stock owned, directly or indirectly, by or for a corporation, partnership*, estate, or trust shall be considered as being owned proportionately by its shareholders*, partners, or beneficiaries.
An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family or by or for his partner*. For purposes of this paragraph, the family of an individual includes only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants.
If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock.
Paragraphs (2) and (3) shall be applied—
for purposes of the stock ownership requirement provided in section 542(a)(2), if, but only if, the effect is to make the corporation a personal holding company;
for purposes of section 543(a)(7) (relating to personal service contracts), of section 543(a)(6) (relating to use of property by shareholders), or of section 543(a)(4) (relating to copyright royalties), if, but only if, the effect is to make the amounts therein referred to includible under such paragraph as personal holding company income.
Stock constructively owned by a person by reason of the application of paragraph (1) or (3), shall, for purposes of applying paragraph (1) or (2), be treated as actually owned by such person; but stock constructively owned by an individual by reason of the application of paragraph (2) shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock.
If stock may be considered as owned by an individual under either paragraph (2) or (3) it shall be considered as owned by him under paragraph (3).
Outstanding securities convertible into stock (whether or not convertible during the taxable year*) shall be considered as outstanding stock—
for purposes of the stock ownership requirement provided in section 542(a)(2), but only if the effect of the inclusion of all such securities is to make the corporation a personal holding company;
for purposes of section 543(a)(7) (relating to personal service contracts), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includible under such paragraph as personal holding company income;
for purposes of section 543(a)(6) (relating to the use of property by shareholders), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includible under such paragraph as personal holding company income; and
for purposes of section 543(a)(4) (relating to copyright royalties), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includible under such paragraph as personal holding company income.
The requirement in paragraphs (1), (2), (3), and (4) that all convertible securities must be included if any are to be included shall be subject to the exception that, where some of the outstanding securities are convertible only after a later date than in the case of others, the class having the earlier conversion date may be included although the others are not included, but no convertible securities shall be included unless all outstanding securities having a prior conversion date are also included.
Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 188; Pub. L. 86–435, § 1(c), (d), Apr. 22, 1960, 74 Stat. 78; Pub. L. 88–272, title II, § 225(k)(3), Feb. 26, 1964, 78 Stat. 93.)
- 1954Enacted · Act of Aug. 16, 1954, ch. 736
- 1960Amended · Pub. L. 86-435 · 74 Stat. 78
- 1964Amended · Pub. L. 88-272 · 78 Stat. 93
A history note hasn’t been published yet. The record shows enactment by ch. 736 on 1954-08-16.
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