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

Summary

Decides when someone is treated as owning a corporation’s stock for figuring out if that corporation is a personal holding company. Stock owned by a company, partnership, estate, or trust is treated as owned in the same share by that entity’s owners. A person is also treated as owning stock held for their family or their partner. An option to buy stock is treated as ownership, and an option to buy an option (or a chain of options) also counts. These family and option rules only apply when using them would actually make the corporation a personal holding company or would make certain payments count as personal holding company income. If someone is treated as owning stock because of the entity or option rules, that treated ownership can be used again in the entity or family tests. But if treated as owning stock only because of the family rule, that treated ownership cannot be used to make someone else a treated owner. If a stock could be treated as owned under both the family and option rules, count it under the option rule. Securities that can be converted into stock are treated like stock only when including them would make the corporation a personal holding company or would make the related amounts count as personal holding company income. Definitions (one line each): family = siblings (whole or half), spouse, parents, and direct descendants; option = a right to buy stock, including rights to buy other options.

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