Question

1. TAX Inc. has 1,000 shares of stock issued and outstanding, which are owned by the following shareholders:

Number of Shares	Shareholder
100	A
100	A's spouse
100	A's son
100	A's sister
100	A's mother
100	A's grandfather
100	Partnership B (A is a 10% partner)
100	Partnership C (A’s spouse is a 60% partner)
100	Corporation D (A is a 40% shareholder)
100	Corporation E (A is an 80% shareholder)
1,000

Instructions:

Under the IRC Sec. 318 constructive ownership rules, how many shares of TAX Inc.

stock is shareholder A considered to own (directly and constructively)?

Answer 1

PROVISION : AS PER IRC SEC 318 CONSTRUCTIVE RULES,

(1)Members of family

(A)In general

An individual shall be considered as owning the stock owned, directly or indirectly, 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), and

(ii) his children, grandchildren, and parents.

(2)Attribution from partnerships, estates, trusts, and corporations

(A)From partnerships and estates

Stock owned, directly or indirectly, by or for a partnership or estate shall be considered as owned proportionately by its partners or beneficiaries.

(C)To corporations

If 50 percent or more in value of the stock in a corporation is owned, directly or indirectly, by or for any person, such corporation shall be considered as owning the stock owned, directly or indirectly, by or for such person.

CONCLUSION: SHARES OWNED BY A  

Number of Shares	Shareholder
100	A
100	A's spouse
100	A's son
100	A's mother
10	Partnership B (A is a 10% partner)
60	Partnership C (A’s spouse is a 60% partner)
100	Corporation E (A is an 80% shareholder)

TOTAL = 570