§318 Constructive ownership of stock

Summary

Says when you must be treated as if you own someone else’s stock. You are treated as owning stock held by your spouse (unless legally separated), your children, grandchildren, and parents. An adopted child counts like a biological child. If a partnership or an estate owns stock, each partner or beneficiary is treated as owning their share by value. If a trust owns stock, beneficiaries are treated as owning it in proportion to their actuarial interest, and anyone treated as the owner under grantor rules is treated as the owner of the trust’s stock. A beneficiary’s interest is ignored if it is a remote contingent interest worth 5 percent or less under the trustee’s maximum favoring of that beneficiary. Employee trusts described in section 401(a) and exempt under section 501(a) are not treated the same. If a person owns 50 percent or more of a corporation’s stock by value, that person is treated as owning the stock owned by the corporation in proportion to their share, and the corporation is treated as owning the stock owned by that person. An option to buy stock is counted as ownership, including an option to buy an option. Generally, stock you constructively own counts as yours for applying these rules again, but you cannot chain family attribution to make someone else the owner a second time, and entity-based constructive ownership has limits. If both the family rule and the option rule apply, count it under the option rule. For these purposes, an S corporation is treated like a partnership and its shareholders like partners. These rules apply to the following code sections: 302, 304, 306(b)(1)(A), 338(h)(3), 382(l)(3), 856(d), 958(b), and 6038(e)(2).