Question

Silver Corporation has 2,000 shares of common stock outstanding. Howard owns 600 shares, Howard’s grandfather owns 300 shares, Howard’s mother own 300 shares, and Howard’s son owns 100 shares. In addition, Maroon Corporation owns 500 shares. Howard owns 70% of the stock in Maroon Corporation. a. Applying the §318 stock attribution rules, how many shares does Howard own in Silver Corporation? b. Assume that Howard owns only 40% of the stock in Maroon Corporation. How many shares does Howard own, directly and indirectly, in Silver Corporation? c. Assume the same facts as in part (a) above, but in addition, Howard owns a 25% interest in Yellow Partnership. Yellow owns 200 shares in Silver Corporation. How many shares does Howard own, directly and indirectly, in Silver Corporation?

Answer 1

Solution:

(a). Applying the § 318 stock attribution rules, a) Howard constructively owns shares in Silver Corporation?

Howard owns = 600 + 300 + 100 + (500*70%)

Howard owns = 1,000 + 350

Howard owns = 1350 Shares

Howard owns

1350 Shares

(b). If Howard owned 40% of the stock of Maroon Corporation, then she would constructively own shares in Silver Corporation?

Howard owns = 600 + 300 + 100

Howard owns = 1000 Shares

Howard owns

1000 Shares

(c). Assume the same facts as in (a) above, but in addition, Howard owns a 25% interest in Yellow Partnership. Yellow owns 200 shares in Silver Corporation. How many shares does Howard own, directly and indirectly, in Silver Corporation?

Howard own, directly and indirectly, in Silver Corporation is

= 600 + 300 + 100 + (500*70%) + (200*25%)

Howard own, directly and indirectly, in Silver Corporation

1400 shares.

Note:

An individual will be considered as owning the stock claimed, straightforwardly or by implication, by or for

(i) his spouse (other than a spouse who is legally separated from the individual under a decree of divorce or separate maintenance),

(ii) his children, grandchildren, and parents.

On the off chance that 50 percent or more in estimation of the stock in a company is claimed, straightforwardly or by implication, by or for any individual, such individual will be considered as owning the stock possessed, specifically or in a roundabout way, by or for such organization, in that extent which the estimation of the stock which such individual so claims bears to the estimation of all the stock in such enterprise.

Stock claimed, specifically or by implication, by or for an association or bequest will be considered as possessed proportionately by its accomplices or recipients.