
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC544]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
   Subchapter G--Corporations Used to Avoid Income Tax on Shareholders
 
                   PART II--PERSONAL HOLDING COMPANIES
 
Sec. 544. Rules for determining stock ownership


(a) Constructive ownership

    For purposes of determining whether a corporation is a personal 
holding company, insofar as such determination is based on stock 
ownership under section 542(a)(2), section 543(a)(7), section 543(a)(6), 
or section 543(a)(4)--

                  (1) Stock not owned by individual

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

                (2) Family and partnership ownership

        An individual shall be considered as owning the stock owned, 
    directly or indirectly, by or for his family or by or for his 
    partner. For purposes of this paragraph, the family of an individual 
    includes only his brothers and sisters (whether by the whole or half 
    blood), spouse, ancestors, and lineal descendants.

                             (3) Options

        If any person has an option to acquire stock, such stock shall 
    be considered as owned by such person. For purposes of this 
    paragraph, an option to acquire such an option, and each one of a 
    series of such options, shall be considered as an option to acquire 
    such stock.

       (4) Application of family-partnership and option rules

        Paragraphs (2) and (3) shall be applied--
            (A) for purposes of the stock ownership requirement provided 
        in section 542(a)(2), if, but only if, the effect is to make the 
        corporation a personal holding company;
            (B) for purposes of section 543(a)(7) (relating to personal 
        service contracts), of section 543(a)(6) (relating to use of 
        property by shareholders), or of section 543(a)(4) (relating to 
        copyright royalties), if, but only if, the effect is to make the 
        amounts therein referred to includible under such paragraph as 
        personal holding company income.

           (5) Constructive ownership as actual ownership

        Stock constructively owned by a person by reason of the 
    application of paragraph (1) or (3), shall, for purposes of applying 
    paragraph (1) or (2), be treated as actually owned by such person; 
    but stock constructively owned by an individual by reason of the 
    application of paragraph (2) shall not be treated as owned by him 
    for purposes of again applying such paragraph in order to make 
    another the constructive owner of such stock.

       (6) Option rule in lieu of family and partnership rule

        If stock may be considered as owned by an individual under 
    either paragraph (2) or (3) it shall be considered as owned by him 
    under paragraph (3).

(b) Convertible securities

    Outstanding securities convertible into stock (whether or not 
convertible during the taxable year) shall be considered as outstanding 
stock--
        (1) for purposes of the stock ownership requirement provided in 
    section 542(a)(2), but only if the effect of the inclusion of all 
    such securities is to make the corporation a personal holding 
    company;
        (2) for purposes of section 543(a)(7) (relating to personal 
    service contracts), but only if the effect of the inclusion of all 
    such securities is to make the amounts therein referred to 
    includible under such paragraph as personal holding company income;
        (3) for purposes of section 543(a)(6) (relating to the use of 
    property by shareholders), but only if the effect of the inclusion 
    of all such securities is to make the amounts therein referred to 
    includible under such paragraphs as personal holding company income; 
    and
        (4) for purposes of section 543(a)(4) (relating to copyright 
    royalties), but only if the effect of the inclusion of all such 
    securities is to make the amounts therein referred to includible 
    under such paragraph as personal holding company income.

The requirement in paragraphs (1), (2), (3), and (4) that all 
convertible securities must be included if any are to be included shall 
be subject to the exception that, where some of the outstanding 
securities are convertible only after a later date than in the case of 
others, the class having the earlier conversion date may be included 
although the others are not included, but no convertible securities 
shall be included unless all outstanding securities having a prior 
conversion date are also included.

(Aug. 16, 1954, ch. 736, 68A Stat. 188; Pub. L. 86-435, Sec. 1(c), (d), 
Apr. 22, 1960, 74 Stat. 78; Pub. L. 88-272, title II, Sec. 225(k)(3), 
Feb. 26, 1964, 78 Stat. 93.)


                               Amendments

    1964--Pub. L. 88-272 substituted ``section 543(a)(7)'' for ``section 
543(a)(5)'', and ``section 543(a)(4)'' for ``section 543(a)(9),'' 
wherever appearing.
    1960--Subsec. (a). Pub. L. 86-435, Sec. 1(c)(1), inserted reference 
to section 543(a)(9) in introductory provisions.
    Subsec. (a)(4)(B). Pub. L. 86-435, Sec. 1(c)(2), included reference 
to section 543(a)(9).
    Subsec. (b). Pub. L. 86-435, Sec. 1(d), added par. (4), and inserted 
reference to par. (4) in last sentence.


                    Effective Date of 1964 Amendment

    Amendment by Pub. L. 88-272 applicable to taxable years beginning 
after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88-272 set out as 
a note under section 316 of this title.


                    Effective Date of 1960 Amendment

    Amendment by Pub. L. 86-435 applicable only with respect to taxable 
years beginning after Dec. 31, 1959, see section 2 of Pub. L. 86-435, 
set out as a note under section 543 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 341, 465, 542, 543, 856, 
6501 of this title.
