§544 — Title 26 Internal Revenue Code | U.S. Code

Summary

Treat stock held by a corporation, partnership, estate, or trust as if the actual owners of that entity own the stock in the same share they own the entity. Treat an individual as owning stock held for their family or their partner; “family” means siblings (including half-siblings), spouse, ancestors (like parents and grandparents), and direct descendants (like children and grandchildren). Treat any option to buy stock as if the option holder owns the stock. Options on options count too. If both the family rule and the option rule could apply, count the stock under the option rule. If someone is treated as owning stock because of the business-or-option rules, that treated ownership counts when you apply the business or family rules again. But if someone is treated as owning stock only because of the family rule, you cannot use that to make another person a constructive owner by repeating the family rule. Only use the family and option rules for the stock test in section 542(a)(2) if applying them would make the corporation a personal holding company. Only use them for sections 543(a)(7), 543(a)(6), or 543(a)(4) if applying them would make the amounts in those paragraphs count as personal holding company income. Also treat outstanding convertible securities as if they were stock for those same four purposes, but only when including all such securities would produce the same result (making the corporation a personal holding company or making the amounts count as personal holding company income).

Title 26, §544

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)—

(1)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.

(2)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.

(3)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.

(4)Paragraphs (2) and (3) shall be applied—

(A)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;

(B)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.

(5)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.

(6)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).

(b)Outstanding securities convertible into stock (whether or not convertible during the taxable year) shall be considered as outstanding stock—

(1)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;

(2)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;

(3)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

(4)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.

Notes & Related Subsidiaries

Editorial Notes

Amendments

1964—Pub. L. 88–272 substituted “section 543(a)(7)” for “section 543(a)(5)”, and “section 543(a)(4)” for “section 543(a)(9),” wherever appearing. 1960—Subsec. (a). Pub. L. 86–435, § 1(c)(1), inserted reference to section 543(a)(9) in introductory provisions. Subsec. (a)(4)(B). Pub. L. 86–435, § 1(c)(2), included reference to section 543(a)(9). Subsec. (b). Pub. L. 86–435, § 1(d), added par. (4), and inserted reference to par. (4) in last sentence.

Statutory Notes and Related Subsidiaries

Effective Date

of 1964 AmendmentAmendment by Pub. L. 88–272 applicable to taxable years beginning after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88–272 set out as a note under section 316 of this title.

Effective Date

of 1960 AmendmentAmendment by Pub. L. 86–435 applicable only with respect to taxable years beginning after Dec. 31, 1959, see section 2 of Pub. L. 86–435, set out as a note under section 543 of this title.

§544 Rules for determining stock ownership

Summary

Title 26, §544

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Citations & Metadata