[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.318-4]

[Page 67-68]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.318-4  Constructive ownership as actual ownership; exceptions.

    (a) In general. Section 318(a)(5)(A) provides that, except as 
provided in section 318(a)(5) (B) and (C), stock constructively owned by 
a person by reason of the application of section 318(a) (1), (2), (3), 
or (4) shall be considered as actually owned by such person for purposes 
of applying section 318(a) (1), (2), (3), and (4). For example, if a 
trust owns 50 percent of the stock of corporation X, stock of 
corporation Y owned by corporation X which is attributed to the trust 
may be further attributed to the beneficiaries of the trust.
    (b) Constructive family ownership. Section 318(a)(5)(B) provides 
that stock constructively owned by an individual by reason of ownership 
by a member of his family shall not be considered as owned by him for 
purposes of making another family member the constructive owner of such 
stock under section 318(a)(1). For example, if F and his two sons, A and 
B, each own one-third of the stock of a corporation, under section 
318(a)(1), A is treated as owning constructively the stock owned by his 
father but is not treated as owning the stock owned by B. Section 
318(a)(5)(B) prevents the attribution of the stock of one brother 
through the father to the other brother, an attribution beyond the scope 
of section 318(a)(1) directly.
    (c) Reattribution. (1) Section 318(a)(5)(C) provides that stock 
constructively owned by a partnership, estate, trust, or corporation by 
reason of the application of section 318(a)(3) shall not be considered 
as owned by it for purposes of applying section 318(a)(2) in order to 
make another the constructive owner of such stock. For example, if two 
unrelated individuals are beneficiaries of the same trust, stock held by 
one which is attributed to the trust

[[Page 68]]

under section 318(a)(3) is not reattributed from the trust to the other 
beneficiary. However, stock constructively owned by reason of section 
318(a)(2) may be reattributed under section 318(a)(3). Thus, for 
example, if all the stock of corporations X and Y is owned by A, stock 
of corporation Z held by X is attributed to Y through A.
    (2) Section 318(a)(5)(C) does not prevent reattribution under 
section 318(a)(2) of stock constructively owned by an entity under 
section 318(a)(3) if the stock is also constructively owned by the 
entity under section 318(a)(4). For example, if individuals A and B are 
beneficiaries of a trust and the trust has an option to buy stock from 
A, B is considered under section 318(a)(2)(B) as owning a proportionate 
part of such stock.
    (3) Section 318(a)(5)(C) is effective on and after August 31, 1964, 
except that for purposes of sections 302 and 304 it does not apply with 
respect to distributions in payment for stock acquisitions or 
redemptions if such acquisitions or redemptions occurred before August 
31, 1964.

[T.D. 6969, 33 FR 11999, Aug. 23, 1968]

                         Corporate Liquidations

                          effects on recipients