[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.544-1]

[Page 264]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.544-1  Constructive ownership.

    (a) Rules relating to the constructive ownership of stock are 
provided by section 544 for the purpose of determining whether the stock 
ownership requirements of the following sections are satisfied:
    (1) Section 542(a)(2), relating to ownership of stock by five or 
fewer individuals.
    (2) Section 543(a)(5), relating to personal holding company income 
derived from personal service contracts.
    (3) Section 543(a)(6), relating to personal holding company income 
derived from property used by shareholders.
    (4) Section 543(a)(9), relating to personal holding company income 
derived from copyright royalties.
    (b) Section 544 provides four general rules with respect to 
constructive ownership. These rules are:
    (1) Constructive ownership by reason of indirect ownership. See 
section 544(a)(1) and Sec. 1.544-2.
    (2) Constructive ownership by reason of family and partnership 
ownership. See section 544(a) (2), (4), (5), and (6), and Sec. Sec. 
1.544-3, 1.544-6, and 1.544-7.
    (3) Constructive ownership by reason of ownership of options. See 
section 544(a) (3), (4), (5), and (6), and Sec. Sec. 1.544-4, 1.544-6, 
and 1.544-7.
    (4) Constructive ownership by reason of ownership of convertible 
securities. See section 544(b) and Sec. 1.544-5.

Each of the rules referred to in subparagraphs (2), (3), and (4) of this 
paragraph is applicable only if it has the effect of satisfying the 
stock ownership requirement of the section to which applicable; that is, 
when applied to section 542(a)(2), its effect is to make the corporation 
a personal holding company, or when applied to section 543(a)(5), 
section 543(a)(6), or section 543(a)(9), its effect is to make the 
amounts described in such provisions includible as personal holding 
company income.
    (c) All forms and classes of stock, however denominated, which 
represent the interests of shareholders, members, or beneficiaries in 
the corporation shall be taken into consideration in applying the 
constructive ownership rules of section 544.
    (d) For rules applicable in treating constructive ownership, 
determined by one application of section 544, as actual ownership for 
purposes of a second application of section 544, see section 544(a)(5) 
and Sec. 1.544-6.

[T.D. 6500, 25 FR 11737, Nov. 26, 1960, as amended by T.D. 6739, 29 FR 
7715, June 17, 1964]