[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: 26CFR1.544-6]

[Page 266-267]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.544-6  Constructive ownership as actual ownership.

    (a) General rules. (1) Stock constructively owned by a person by 
reason of the application of the rule provided in section 544(a)(1), 
relating to stock not owned by an individual, shall be considered as 
actually owned by such person for the purpose of again applying such 
rule or of applying the family and partnership rule provided in section 
544(a)(2), in order to make another person the constructive owner of 
such stock, and
    (2) Stock constructively owned by a person by reason of the 
application of the option rule provided in section 544(a)(3) shall be 
considered as actually owned by such person for the purpose of applying 
either the rule provided in section 544(a)(1), relating to stock not 
owned by an individual, or the family and partnership rule provided in 
section 544(a)(2) in order to make another person the constructive owner 
of such stock, but
    (3) Stock constructively owned by an individual by reason of the 
application of the family and partnership rule provided in section 
544(a)(2) shall not be considered as actually owned by such individual 
for the purpose of again applying such rule in order to make another 
individual the constructive owner of such stock.
    (b) Examples. The application of this section may be illustrated by 
the following examples:

    Example 1. A's wife, AW, owns all the stock of the M Corporation, 
which in turn owns all the stock of the O Corporation. The O Corporation 
in turn owns all the stock of the P Corporation. Under the rule provided 
in section 544(a)(1), relating to stock not owned by an individual, the 
stock in the P Corporation owned by the O Corporation is considered to 
be owned constructively by the M Corporation, the sole shareholder of 
the O Corporation. Such constructive ownership of the stock of the M 
Corporation is considered as actual ownership for the purpose of again 
applying such rule in order to make AW, the sole shareholder of the M 
Corporation, the constructive owner of the stock of the P Corporation. 
Similarly, the constructive ownership of the stock by AW is considered 
as actual ownership for the purpose of applying the family and 
partnership rule provided in section 544(a)(2) in order to make A the 
constructive owner of the stock of the P Corporation, if such 
application is necessary for any of the purposes set forth in paragraph 
(b) of Sec. 1.544-1. But the stock thus constructively owned by A may 
not be considered as actual ownership for the purpose of again applying 
the family and partnership rule in order to make another member of A's 
family, for example, A's father, the constructive owner of the stock of 
the P Corporation.
    Example 2. B, an individual, owns all the stock of the R Corporation 
which has an option to acquire all the stock of the S Corporation, owned 
by C, an individual, who is not related to B. Under the option rule 
provided in section 544(a)(3) the R Corporation may be considered as 
owning constructively the stock of the S Corporation owned by C. Such 
constructive ownership of the stock by the R Corporation is considered 
as actual ownership for the purpose of applying the

[[Page 267]]

rule provided in section 544(a)(1), relating to stock not owned by an 
individual, in order to make B, the sole shareholder of the R 
Corporation, the constructive owner of the stock of the S Corporation. 
The stock thus constructively owned by B by reason of the application of 
the rule provided in section 544(a)(1) likewise is considered as actual 
ownership for the purpose, if necessary, of applying the family and 
partnership rule provided in section 544(a)(2), in order to make another 
member of B's family, for example, B's wife, BW, the constructive owner 
of the stock of the S Corporation. However, the family and partnership 
rule could not again be applied so as to make still another individual 
the constructive owner of the stock of the S Corporation, that is, the 
stock constructively owned by BW could not be considered as actually 
owned by her in order to make BW's father the constructive owner of such 
stock by a second application of the family and partnership rule.