
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC554]

 
                     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 III--FOREIGN PERSONAL HOLDING COMPANIES
 
Sec. 554. Stock ownership


(a) Constructive ownership

    For purposes of determining whether a corporation is a foreign 
personal holding company, insofar as such determination is based on 
stock ownership under section 552(a)(2), section 553(a)(5), or section 
553(a)(6)--

                  (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 552(a)(2), if, but only if, the effect is to make the 
        corporation a foreign personal holding company;
            (B) for purposes of section 553(a)(5) (relating to personal 
        service contracts) or of section 553(a)(6) (relating to the use 
        of property by shareholders), if, but only if, the effect is to 
        make the amounts therein referred to includible under such 
        paragraph as foreign 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 552(a)(2), but only if the effect of the inclusion of all 
    such securities is to make the corporation a foreign personal 
    holding company;
        (2) for purposes of section 553(a)(5) (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 foreign personal holding company 
    income; and
        (3) for purposes of section 553(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 paragraph as foreign personal holding company 
    income.

The requirement in paragraphs (1), (2), and (3) 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.

(c) Special rules for application of subsection (a)(2)

    For purposes of the stock ownership requirement provided in section 
552(a)(2)--
        (1) stock owned by a nonresident alien individual (other than a 
    foreign trust or foreign estate) shall not be considered by reason 
    of so much of subsection (a)(2) as relates to attribution through 
    family membership as owned by a citizen or by a resident alien 
    individual who is not the spouse of the nonresident individual and 
    who does not otherwise own stock in such corporation (determined 
    after the application of subsection (a), other than attribution 
    through family membership), and
        (2) stock of a corporation owned by any foreign person shall not 
    be considered by reason of so much of subsection (a)(2) as relates 
    to attribution through partners as owned by a citizen or resident of 
    the United States who does not otherwise own stock in such 
    corporation (determined after application of subsection (a) and 
    paragraph (1), other than attribution through partners).

(Aug. 16, 1954, ch. 736, 68A Stat. 196; Pub. L. 88-272, title II, 
Sec. 225(e), Feb. 26, 1964, 78 Stat. 86; Pub. L. 98-369, div. A, title 
I, Sec. 132(a), July 18, 1984, 98 Stat. 665.)


                               Amendments

    1984--Subsec. (c). Pub. L. 98-369 added subsec. (c).
    1964--Pub. L. 88-272 amended section generally by designating 
existing provisions as subsec. (a), and substituting pars. (1) to (6) 
therein and subsec. (b), for provisions which incorporated by reference 
substantially the same provisions as in such pars. (1) to (6) and 
subsec. (b).


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to taxable years of foreign 
corporations beginning after Dec. 31, 1983, see section 132(d)(1) of 
Pub. L. 98-369, set out as a note under section 551 of this title.


                    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.

                  Section Referred to in Other Sections

    This section is referred to in sections 898, 6035 of this title.
