§544 Rules for Determining Stock Ownership

Summary

Decides when people are treated as owning stock to figure out if a corporation meets certain ownership tests for being a personal holding company. Stock owned by a corporation, partnership, estate, or trust is treated as owned by its owners in the same proportion as their interests. A person is treated as owning stock held by their family or by their partner; family means brothers and sisters (whole or half), spouse, ancestors, and direct descendants. If someone has an option to buy stock, they are treated as owning that stock, and an option to buy an option counts too. The family and option rules only apply when using them would make the company a personal holding company or would make certain payments count as personal holding company income (for example, personal service contracts, use of property by shareholders, or copyright royalties). Stock treated as owned because of the entity rule or an option is treated as actually owned when applying the family or partnership rule, but stock treated as owned only because of the family rule cannot be used again to make a different person a constructive owner. If stock could be treated as owned under either the family rule or the option rule, the option rule wins. Securities that can be converted into stock are treated as if they were stock for the same ownership tests, but only if counting all such convertibles would cause the same results above. If some convertible securities convert later than others, the group with the earlier conversion date may be counted even if later groups are not, but you cannot include any convertible securities unless you also include every outstanding security with an earlier conversion date.