[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: 26CFR1.544-3]

[Page 265]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.544-3  Constructive ownership by reason of family and partnership ownership.

    (a) The following example illustrates the application of section 
544(a)(2), relating to constructive ownership by reason of family and 
partnership ownership.

    Example. The M Corporation at some time during the last half of the 
taxable year, had 1,800 shares of outstanding stock, 450 of which were 
held by various individuals having no relationship to one another and 
none of whom were partners, and the remaining 1,350 were held by 51 
shareholders as follows:

----------------------------------------------------------------------------------------------------------------
          Relationships               Shares          Shares          Shares          Shares          Shares
----------------------------------------------------------------------------------------------------------------
An individual...................          (A)100           (B)20           (C)20           (D)20           (E)20
His father......................          (AF)10          (BF)10          (CF)10          (DF)10          (EF)10
His wife........................          (AW)10          (BW)40          (CW)40          (DW)40          (EW)40
His brother.....................          (AB)10          (BB)10          (CB)10          (DB)10          (EB)10
His son.........................          (AS)10          (BS)40          (CS)40          (DS)40          (ES)40
His daughter by former marriage
 (son's.........................
   half-sister).................        (ASHS)10        (BSHS)40        (CSHS)40        (DSHS)40        (ESHS)40
His brother's wife..............         (ABW)10         (BBW)10         (CBW)10        (DBW)160         (EBW)10
His wife's father...............         (AWF)10         (BWF)10        (CWF)110         (DWF)10         (EWF)10
His wife's brother..............         (AWB)10         (BWB)10         (CWB)10         (DWB)10         (EWB)10
His wife's brother's wife.......        (AWBW)10        (BWBW)10        (CWBW)10        (DWBW)10       (EWBW)110
Individual's partner............          (AP)10  ..............  ..............  ..............  ..............
----------------------------------------------------------------------------------------------------------------


By applying the statutory rule provided in section 544(a)(2) five 
individuals own more than 50 percent of the outstanding stock as 
follows:

A (including AF, AW, AB, AS, ASHS, AP)..........................     160
B (including BF, BW, BB, BS, BSHS)..............................     160
CW (including C, CS, CWF, CWB)..................................     220
DB (including D, DF, DBW).......................................     200
EWB (including EW, EWF, EWBW)...................................     170
                                                                 -------
    Total, or more than 50 percent..............................     910


Individual A represents the obvious case where the head of the family 
owns the bulk of the family stock and naturally is the head of the 
group. A's partner owns 10 shares of the stock. Individual B represents 
the case where he is still head of the group because of the ownership of 
stock by his immediate family. Individuals C and D represent cases where 
the individuals fall in groups headed in C's case by his wife and in D's 
case by his brother because of the preponderance of holdings on the part 
of relatives by marriage. Individual E represents the case where the 
preponderant holdings of others eliminate that individual from the 
group.

    (b) For the restriction on the applicability of the family and 
partnership ownership rules of this section, see paragraph (b) of Sec. 
1.544-1. For rules relating to constructive ownership as actual 
ownership, see Sec. 1.544-6.