[Title 26 CFR 1.958-2]
[Code of Federal Regulations (annual edition) - April 1, 2002 Edition]
[Title 26 - INTERNAL REVENUE]
[Chapter I - INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY]
[Subchapter A - INCOME TAX (CONTINUED)]
[Part 1 - INCOME TAXES]
[Sec. 1.958-2 - Constructive ownership of stock.]
[From the U.S. Government Printing Office]


26INTERNAL REVENUE102002-04-012002-04-01false1.958-2Sec. 1.958-2INTERNAL REVENUEINTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURYINCOME TAX (CONTINUED)INCOME TAXES
Sec. 1.958-2  Constructive ownership of stock.

    (a) In general. Section 958(b) provides that, for purposes of 
sections 951(b), 954(d)(3), 956(b)(2), and 957, the rules of section 
318(a) as modified by section 958(b) and this section shall apply to the 
extent that the effect is to treat a United States person as a United 
States shareholder within the meaning of section 951(b), to treat a 
person as a related person within the meaning of section 954(d)(3), to 
treat the stock of a domestic corporation as owned by a United States 
shareholder of a controlled foreign corporation under section 956(b)(2), 
or to treat a foreign corporation as a controlled foreign corporation 
under section 957. The rules contained in this section also apply for 
purposes of other provisions of the Code and regulations which make 
express reference to section 958(b).
    (b) Members of family--(1) In general. Except as provided in 
subparagraph (3) of this paragraph, 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) Effect of adoption. For purposes of subparagraph (1)(ii) of this 
paragraph, a legally adopted child of an individual shall be treated as 
a child of such individual by blood.
    (3) Stock owned by nonresident alien individual. For purposes of 
this paragraph, stock owned by a nonresident alien individual (other 
than a foreign trust or foreign estate) shall not be considered as owned 
by a United States

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citizen or a resident alien individual. However, this limitation does 
not apply for purposes of determining whether the stock of a domestic 
corporation is owned or considered as owned by a United States 
shareholder under section 956(b)(2) and Sec. 1.956-2(b)(1)(viii). See 
section 958(b)(1).
    (c) Attribution from partnerships, estates, trusts, and 
corporations--(1) In general. Except as provided in subparagraph (2) of 
this paragraph--
    (i) 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.
    (ii) From trusts--(a) To beneficiaries. Stock owned, directly or 
indirectly, by or for a trust (other than an employees' trust described 
in section 401(a) which is exempt from tax under section 501(a)) shall 
be considered as owned by its beneficiaries in proportion to the 
actuarial interest of such beneficiaries in such trust.
    (b) To owner. Stock owned, directly or indirectly, by or for any 
portion of a trust of which a person is considered the owner under 
sections 671 to 679 (relating to grantors and others treated as 
substantial owners) shall be considered as owned by such person.
    (iii) From corporations. If 10 percent or more in value of the stock 
in a corporation is owned, directly or indirectly, by or for any person, 
such person shall be considered as owning the stock owned, directly or 
indirectly, by or for such corporation, in that proportion which the 
value of the stock which such person so owns bears to the value of all 
the stock in such corporation. See section 958(b)(3).
    (2) Rules of application. For purposes of subparagraph (1) of this 
paragraph, if a partnership, estate, trust, or corporation owns, 
directly or indirectly, more than 50 percent of the total combined 
voting power of all classes of stock entitled to vote in a corporation, 
it shall be considered as owning all the stock entitled to vote. See 
section 958(b)(2).
    (d) Attribution to partnerships, estates, trusts, and corporations--
(1) In general. Except as provided in subparagraph (2) of this 
paragraph--
    (i) To partnerships and estates. Stock owned, directly or 
indirectly, by or for a partner or a beneficiary of an estate shall be 
considered as owned by the partnership or estate.
    (ii) To trusts--(a) From beneficiaries. Stock owned, directly or 
indirectly, by or for a beneficiary of a trust (other than an employees' 
trust described in section 401(a) which is exempt from tax under section 
501(a)) shall be considered as owned by the trust, unless such 
beneficiary's interest in the trust is a remote contingent interest. For 
purposes of the preceding sentence, a contingent interest of a 
beneficiary in a trust shall be considered remote if, under the maximum 
exercise of discretion by the trustee in favor of such beneficiary, the 
value of such interest, computed actuarially, is 5 percent or less of 
the value of the trust property.
    (b) From owner. Stock owned, directly or indirectly, by or for a 
person who is considered the owner of any portion of a trust under 
sections 671 to 678 (relating to grantors and others treated as 
substantial owners) shall be considered as owned by the trust.
    (iii) 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. This subdivision shall not be 
applied so as to consider a corporation as owning its own stock.
    (2) Limitation. Subparagraph (1) of this paragraph shall not be 
applied so as to consider a United States person as owning stock which 
is owned by a person who is not a United States person. This limitation 
does not apply for purposes of determining whether the stock of a 
domestic corporation is owned or considered as owned by a United States 
shareholder under section 956(b)(2) and Sec. 1.956-2(b)(1)(viii). See 
section 958(b)(4).
    (e) Options. If any person has an option to acquire stock, such 
stock shall be considered as owned by such person. For purposes of the 
preceding sentence, 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.
    (f) Rules of application. For purposes of this section--

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    (1) Stock treated as actually owned-- (i) In general. Except as 
provided in subdivisions (ii) and (iii) of this subparagraph, stock 
constructively owned by a person by reason of the application of 
paragraphs (b), (c), (d), and (e) of this section shall, for purposes of 
applying such paragraphs, be considered as actually owned by such 
person.
    (ii) Members of family. Stock constructively owned by an individual 
by reason of the application of paragraph (b) of this section shall not 
be considered as owned by him for purposes of again applying such 
paragraph in order to make another the constructive owner of such stock.
    (iii) Partnerships, estates, trusts, and corporation. Stock 
constructively owned by a partnership, estate, trust, or corporation by 
reason of the application of paragraph (d) of this section shall not be 
considered as owned by it for purposes of applying paragraph (c) of this 
section in order to make another the constructive owner of such stock.
    (iv) Option rule in lieu of family rule. For purposes of this 
subparagraph, if stock may be considered as owned by an individual under 
paragraph (b) or (e) of this section, it shall be considered as owned by 
him under paragraph (e).
    (2) Coordination of different attribution rules. For purposes of any 
one determination, stock which may be owned under more than one of the 
rules of Sec. 1.958-1 and this section, or by more than one person, 
shall be owned under that attribution rule which imputes to the person, 
or persons, concerned the largest total percentage of such stock. The 
application of this subparagraph may be illustrated by the following 
examples:

    Example 1. (a) United States persons A and B, and domestic 
corporation M, own 9 percent, 32 percent, and 10 percent, respectively, 
of the one class of stock in foreign corporation R. A also owns 10 
percent of the one class of stock in M Corporation. For purposes of 
determining whether A is a United States shareholder with respect to R 
Corporation, 10 percent of the 10-percent interest of M Corporation in R 
Corporation is considered as owned by A. See paragraph (c)(1)(iii) of 
this section. Thus, A owns 10 percent (9 percent plus 10 percent of 10 
percent) of the stock in R Corporation and is a United States 
shareholder with respect to such corporation. Corporation M and B, by 
reason of owning 10 percent and 32 percent, respectively, of the stock 
in R Corporation are United States shareholders with respect to such 
corporation.
    (b) For purposes of determining whether R Corporation is a 
controlled foreign corporation, the 1 percent of the stock in R 
Corporation directly owned by M Corporation and considered as owned by A 
cannot be counted twice. Therefore, the total amount of stock in R 
Corporation owned by United States shareholders is 51 percent, 
determined as follows:

                    Stock Ownership in R Corporation
                                [percent]
 
 
 
A..............................................................        9
B..............................................................       32
M Corporation..................................................       10
                                                                --------
  Total........................................................       51
 

    Example 2. United States person C owns 10 percent of the one class 
of stock in foreign corporation N, which owns 60 percent of the one 
class of stock in foreign corporation S. Under paragraph (a)(2) of 
Sec. 1.958-1, C is considered as owning 6 percent (10 percent of 60 
percent) of the stock in S Corporation. Under paragraph (c)(1)(iii) and 
(2) of this section N Corporation is considered as owning 100 percent of 
the stock in S Corporation and C is considered as owning 10 percent of 
such 100 percent, or 10 percent of the stock in S Corporation. Thus, for 
purposes of determining whether C is a United States shareholder with 
respect to S Corporation, the attribution rules of paragraph (c)(1)(iii) 
and (2) of this section are used inasmuch as C owns a larger total 
percentage of the stock of S Corporation under such rules.

    (g) Illustration. The application of this section may be illustrated 
by the following examples:

    Example 1. United States persons A and B own 5 percent and 25 
percent, respectively, of the one class of stock in foreign corporation 
M. Corporation M owns 60 percent of the one class of stock in foreign 
corporation N. Under paragraph (a)(2) of Sec. 1.958-1, A and B are 
considered as owning 3 percent (5 percent of 60 percent) and 15 percent 
(25 percent of 60 percent), respectively, of the stock in N Corporation. 
Under paragraph (c)(2) of this section, M Corporation is treated as 
owning all the stock in N Corporation, and, under paragraph (c)(1)(iii) 
of this section, B is considered as owning 25 percent of such 100 
percent, or 25 percent of the stock in N Corporation. Inasmuch as A owns 
less than 10 percent of the stock in M Corporation, he is not considered 
as owning, under paragraph (c)(1)(iii) of this section, any of the stock 
in N Corporation owned by M Corporation. Thus, the attribution rules of 
paragraph (a)(2) of Sec. 1.958-1

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are used with respect to A inasmuch as he owns a larger total percentage 
of the stock of N Corporation under such rules; and the attribution 
rules of paragraph (c)(1)(iii) and (2) of this section are used with 
respect to B inasmuch as he owns a larger total percentage of the stock 
of N Corporation under such rules.
    Example 2. United States person C owns 60 percent of the one class 
of stock in domestic corporation P; corporation P owns 60 percent of the 
one class of stock in foreign corporation Q; and corporation Q owns 60 
percent of the one class of stock in foreign corporation R. Under 
paragraph (a)(2) of Sec. 1.958-1, P Corporation is considered as owning 
36 percent (60 percent of 60 percent) of the stock in R Corporation, and 
C is considered as owning none of the stock in R Corporation inasmuch as 
the chain of ownership stops at the first United States person and P 
Corporation is such a person. Under paragraph (c)(2) of this section, Q 
Corporation is treated as owning 100 percent of the stock in R 
Corporation, and under paragraph (c)(1)(iii) of this section, P 
Corporation is considered as owning 60 percent of such 100 percent, or 
60 percent of the stock in R Corporation. For purposes of determining 
the amount of stock in R Corporation which C is considered as owning, P 
Corporation is treated under paragraph (c)(2) of this section as owning 
100 percent of the stock in R Corporation; therefore, C is considered as 
owning 60 percent of the stock in R Corporation. Thus, the attribution 
rules of paragraph (c)(1)(iii) and (2) of this section are used with 
respect to C and P Corporation inasmuch as they each own a larger total 
percentage of the stock of R Corporation under such rules.
    Example 3. United States person D owns 25 percent of the one class 
of stock in foreign corporation S. D is also a 40-percent partner in 
domestic partnership X, which owns 50 percent of the one class of stock 
in domestic corporation T. Under paragraph (d)(1)(i) of this section, 
the 25 percent of the stock in S Corporation owned by D is considered as 
being owned by partnership X; since such stock is treated as actually 
owned by partnership X under paragraph (f)(1)(i) of this section, such 
stock is in turn considered as being owned by T Corporation under 
paragraph (d)(1)(iii) of this section. Thus, under paragraphs (d)(1) and 
(f)(1)(i) of this section, T Corporation is considered as owning 25 
percent of the stock in S Corporation.
    Example 4. Foreign corporation U owns 100 percent of the one class 
of stock in domestic corporation V and also 100 percent of the one class 
of stock in foreign corporation W. By virtue of paragraph (d)(2) of this 
section, V Corporation may not be considered under paragraph (d)(1) of 
this section as owning the stock owned by its sole shareholder, U 
Corporation, in W Corporation.
    Example 5. United States citizen E owns 15 percent of the one class 
of stock in foreign corporation Y, and United States citizen F, E's 
spouse, owns 5 percent of such stock. E and F's four nonresident alien 
grandchildren each own 20 percent of the stock in Y Corporation. Under 
paragraph (b)(1) of this section, E is considered as owning the stock 
owned by F in Y Corporation; however, by virtue of paragraph (b)(3) of 
this section, E may not be considered under paragraph (b)(1) of this 
section as owning any of the stock in Y Corporation owned by such 
grandchildren.
    Example 6. United States person F owns 10 percent of the one class 
of stock in foreign corporation Z; corporation Z owns 10 percent of the 
one class of stock in foreign corporation K; and corporation K owns 100 
percent of the one class of stock in foreign corporation L. United 
States person G, F's spouse, owns 9 percent of the stock in K 
Corporation. Under paragraph (c)(1)(iii) of this section or paragraph 
(a)(2) of Sec. 1.958-1, F is considered as owning 1 percent (10 percent 
of 10 percent of 100 percent) of the stock in L Corporation by reason of 
his ownership of stock in Z Corporation, and, under paragraph (b)(1) of 
this section, G is considered as owning such 1 percent of the stock in L 
Corporation. Under paragraph (a)(2) of Sec. 1.958-1, G is considered as 
owning 9 percent (9 percent of 100 percent) of the stock in L 
Corporation by reason of her ownership of stock in K Corporation, and, 
under paragraph (b)(1) of this section, F is considered as owning such 9 
percent of the stock in L Corporation. Thus, for the purpose of 
determining whether F or G is a United States shareholder with respect 
to L Corporation, each of F and G is considered as owning a total of 10 
percent of the stock in L Corporation by applying the rules of paragraph 
(a)(2) of Sec. 1.958-1 and paragraphs (b)(1) and (c)(1)(iii) of this 
section.

(Secs. 956(c), 7805, Internal Revenue Code of 1954 (76 Stat. 1017, 68A 
Stat. 917; (26 U.S.C. 956(c) and 7805 respectively)))

[T.D. 6889, 31 FR 9455, July 12, 1966, as amended by T.D. 7712, 45 FR 
52375, Aug. 7, 1980; T.D. 8955, 66 FR 37897, July 20, 2001]