Current through Register Vol. XLI, No. 38, September 20, 2024
15B.1. In general. - In determining stock
ownership for purposes of Section
110-13C-15
of these regulations, and this section, the constructive ownership rules of
subsection 15B.2 of this section apply to the extent such rules are referred to
in such sections. The application of such rules shall be subject to the
operating rules and special rules contained in subsection 15B.3 and 15B.4 of
this section.
15B.2. Constructive
ownership.
15B.2.1. Options. - If a person
has an option to acquire any outstanding stock of a corporation, such stock
shall be considered as owned by such person. For purposes of this subsection,
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. For example, assume
Smith owns an option to purchase one hundred (100) shares of the outstanding
stock of M Corporation. Under this subsection, Smith is considered to own such
one hundred (100) shares. The result would be the same if Smith owned an option
to acquire the option (or one of a series of options) to purchase one hundred
(100) shares of M stock.
15B.2.2.Attribution from partnerships.
15B.2.2.1.Stock owned, directly or
indirectly, by or for a partnership shall be considered as owned by any partner
having an interest of five percent (5%) or more in either the capital or
profits of the partnership in proportion to his interest in capital or profits,
whichever such proportion is the greater.
15B.2.2.2.The provisions of this subsection
may be illustrated by the following example:
Example: Green, Jones, and White, unrelated individuals, are
partners in the GJW partnership. The partners' interests in the capital and
profits of the partnership are as follows:
|
Partner |
Capital |
Profits |
|
Green |
36% |
25% |
|
Jones |
50% |
71% |
|
White |
4% |
4% |
The GJW partnership owns the entire outstanding stock (one
hundred (100) shares) of X Corporation. Under this subparagraph, Green is
considered to own the X stock owned by the partnership in proportion to his
interest in capital (36%) or profits (25%), whichever such proportion is the
greater. Therefore, Green is considered to own thirty-six (36) shares of the X
stock. However, since Jones has a greater interest in the profits of the
partnership, he is considered to own the X stock in proportion to his interest
in such profits. Therefore, Jones is considered to own seventy-one (71) shares
of the X stock. Since White does not have an interest of five percent (5%) or
more in either the capital or profits of the partnership, he is not considered
to own any shares of the X stock.
15B.2.3.Attribution from estates or trusts.
15B.2.3.1.Stock owned, directly or
indirectly, by or for an estate or trust shall be considered as owned by any
beneficiary who has an actuarial interest of five percent (5%) or more in such
stock, to the extent of such actuarial interest. For purposes of this
subsection, the actuarial interest of each beneficiary shall be determined by
assuming the maximum exercise of discretion by the fiduciary in favor of such
beneficiary and the maximum exercise of discretion by the fiduciary in favor of
such beneficiary and the maximum use of such stock to satisfy his rights as a
beneficiary. A beneficiary of an estate or trust who cannot under any
circumstances receive any interest in stock held by the estate or trust,
including the proceeds from the disposition thereof, or the income therefrom,
does not have an actuarial interest in such stock. Thus, where stock owned by a
decedent's estate has been specifically bequeathed to certain beneficiaries and
the remainder of the estate is bequeathed to other beneficiaries, the stock is
attributable only to the beneficiaries to whom it is specifically bequeathed.
Similarly, a remainderman of a trust who cannot under any circumstances receive
any interest in the stock of a corporation which is a part of the corpus of the
trust (including any accumulated income therefrom or the proceeds from a
disposition thereof) does not have an actuarial interest in such stock.
However, an income beneficiary of a trust does have an actuarial interest in
stock if he has any right to the income from such stock even though under the
terms of the trust instrument such stock can never be distributed to him. The
factors and methods prescribed for use in ascertaining the value of an interest
in property for federal estate tax purposes shall be used for purposes of this
subdivision in determining a beneficiary's actuarial interest in stock owned
directly or indirectly by or for a trust.
15B.2.3.2.For the purposes of this
subsection, property of a decedent shall be considered as owned by his estate
if such property is subject to administration by the executor or administrator
for the purposes of paying claims against the estate and expenses of
administration notwithstanding that, under local law, legal title to such
property vests in the decedent's heirs, legatees, or devisees immediately upon
death. With respect to an estate, the term "Beneficiary" includes any person
entitled to receive property of the decedent pursuant to a will or pursuant to
laws of descent and distribution. A person shall no longer be considered a
beneficiary of an estate when all the property to which the beneficiary is
entitled has been received by such person, when the beneficiary no longer has a
claim against the estate arising out of having been a beneficiary, and when
there is only a remote possibility that it will be necessary for the estate to
seek the return of property or to seek payment from the beneficiary by
contribution or otherwise to satisfy claims against the estate or expenses of
administration. When pursuant to the preceding sentence, a person ceases to be
a beneficiary, stock owned by the estate shall not thereafter be considered
owned by the beneficiary.
15B.2.3.3.Stock owned, directly or
indirectly, by or for any portion of a trust of which a person is considered
the owner under subpart E, part I, subchapter J of the Internal Revenue Code
(relating to grantors and others treated as substantial owners) is considered
as owned by such person.
15B.2.3.4.This subsection does not apply to
stock owned by any employees' trust described in Internal Revenue Code '401(a)
which is exempt from tax under Internal Revenue Code
'501(a).
15B.2.4.Attribution from corporations.
15B.2.4.1.Stock owned, directly or
indirectly, by or for a corporation shall be considered as owned by any person
who owns (within the meaning of Section
110-13C-15.4
of these regulations five percent 5%) or more in value of its stock 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.
15B.2.4.2.The provisions of this subparagraph
may be illustrated by the following example:
Example: Brown, an individual, owns sixty (60) shares of the
one hundred (100) shares of the only class of outstanding stock of corporation
P. Smith, an individual, owns four (4) shares of the P stock, and corporation X
owns thirty-six (36) shares of the P stock. Corporation P owns, directly and
indirectly, fifty (50) shares of the stock of Corporation S. Under this
subsection, Brown is considered to own thirty (30) shares of the S stock
(60/100 X 50), and X is considered to own eighteen (18) shares of the S stock
(36/100 X 50).
Since Smith does not own five percent (5%) or more in value
of the P stock, he is not considered as owning any of the S stock owned by P.
If, in this example, Smith's wife had owned directly 1 share of the P stock,
Smith (and his wife) would each own five (5) shares of the P stock, and
therefore Smith (and his wife) would be considered as owning 2.5 shares of the
S stock (5/100 X 50).
15B.2.5.Spouse.
15B.2.5.1.Except as provided in subparagraph
15B.2.5.2 of this section, an individual shall be considered to own the stock
owned, directly or indirectly, by or for his spouse, other than a spouse who is
legally separated from the individual under a decree of divorce, whether
interlocutory or final, or a decree of separate maintenance.
15B.2.5.2.An individual shall not be
considered to own stock in a corporation owned, directly or indirectly, by or
for his spouse on any day of a taxable year of such corporation, provided that
each of the following conditions are satisfied with respect to such taxable
year:
15B.2.5.2.a.Such individual does not,
at any time during such taxable year, own directly any stock in such
corporation.
15B.2.5.2.b.Such
individual is not a member of the board of directors or an employee of such
corporation and does not participate in the management of such corporation at
any time during such taxable years.
15B.2.5.2.c.Not more than fifty percent (50%)
of such corporation's gross income for such taxable year was derived from
royalties, rents, dividends, interest, and annuities.
15B.2.5.2.d.Such stock in such corporation is
not, at any time during such taxable year, subject to conditions which
substantially restrict or limit the spouse's right to dispose of such stock and
which run in favor of the individual or his children who have not attained the
age of twenty-one (21) years. The principles of subsection 15A.2.2.3 of these
regulations shall apply in determining whether a condition is a condition
described in the preceding sentence.
15B.2.5.3.For purposes of subparagraph
15B.2.5.2 of this section, the gross income of a corporation for a taxable year
shall be determined under I.R.C. '61 and the regulations thereunder. The terms
"royalties," "rents," "dividends," "interest," and "annuities" shall have the
same meanings such terms are given for purposes of I.R.C.
'1244(c).
15B.2.6.Children, grandchildren, parents, and
grandparents.
15B.2.6.1.An individual shall
be considered to own the stock owned, directly or indirectly, by or for his
children who have not attained the age of twenty-one (21) years, and, if the
individual has not attained the age of twenty-one (21) years, the stock owned,
directly or indirectly, by or for his parents.
15B.2.6.2.If an individual owns (directly,
and with the application of the rules of this section but without regard to
this subsection) stock possessing more than fifty percent (50%) of the total
combined voting power of all classes of stock entitled to vote or more than
fifty percent (50%) of the total value of shares of all classes of stock in a
corporation, then such individual shall be considered to own the stock in such
corporation owned, directly or indirectly, by or for his parents, grandparents,
and children who have attained the age of twenty-one (21) years. In determining
whether the stock owned by an individual possesses the requisite percentage of
the total combined voting power of all classes of stock entitled to vote of a
corporation.
15B.2.6.3.For purposes
of W. Va. Code '11-13C-14
and Sections
110-13C-15
through
110-13C-15C
of these regulations, a legally adopted child of an individual shall be treated
as a child of such individual by blood.
15B.2.6.4.The provisions of this paragraph
may be illustrated by the following example:
Example:
(a) Facts.
- Individual F owns directly forty (40) shares of the one hundred (100) shares
of the only class of stock of Z Corporation. His son, M (twenty (20) years of
age), owns directly thirty (30) shares of such stock, and his son, A (thirty
(30) years of age), owns directly twenty (20) shares of such stock. The
remaining ten (10) shares of the Z stock are owned by an unrelated
person.
(b) F's ownership. -
Individual F owns forty (40) shares of the Z stock directly and is considered
to own the thirty (30) shares of Z stock owned directly by M. Since, for
purposes of the more-than-fifty percent (50%) stock ownership test contained in
subsection 15B.2.6.2, F is treated as owning seventy (70) shares of seventy
percent (70%) of the total voting power and value of the Z stock, he is also
considered as owning the twenty (20) shares owned by his adult son, A.
Accordingly, F is considered as owning a total of ninety (90) shares of the Z
stock.
(c) M's ownership. - Minor
son, M, owns thirty (30) shares of the Z stock directly, and is considered to
own the forty (40) shares of Z stock owned directly by his father, F. However,
M is not considered to own the twenty (20) shares of Z stock owned directly by
his brother, A, and constructively by F, because stock constructively owned by
F by reason of family attribution is not considered as owned by him for
purposes of making another member of his family the constructive owner of such
stock. See Section 15B.3.2 of these regulations. Accordingly, M owns and is
considered as owning a total of seventy (70) shares of the Z stock.
(d) A's ownership. - Adult son, A, owns twent
(20) shares of the Z stock directly. Since, for purposes of the more-than-fifty
percent (50%) stock ownership test contained in subsection 15B.2.6.2 of this
section, A is treated as owning only the Z stock which he owns directly, he
does not satisfy the condition precedent for the attribution of Z stock from
his father. Accordingly, A is treated as owning only the twenty (20) shares of
Z stock which he owns directly.
15B.3. Operating rules and special rules.
15B.3.1.In general. - Except as provided in
paragraph 15B.3.2 of this section, stock constructively owned by a person by
reason of the application of paragraphs 15B.2.1 through 15B.2.6 of this section
shall, for purposes of applying such paragraphs, be treated as actually owned
by such person.
15B.3.2.Members of
family. - Stock constructively owned by an individual by reason of the
application of paragraphs 15B.2.5 or 15B.2.6 of this section shall not be
treated as owned by him for purposes of again applying such subsections in
order to make another the constructive owner of such stock.
15B.3.3.Precedence of option attribution. -
For purposes of this section, if stock may be considered as owned by a person
under paragraph 15B.2.1 of this section (relating to option attribution) and
under any other paragraph of such section, such stock shall be considered as
owned by such person under subsection 15B.3.1 of such paragraph.
15B.3.4.Examples. - The provisions of this
paragraph may be illustrated by the following examples:
Example (1): A, thirty (30) years of age, has a ninety
percent (90%) interest in the capital and profits of a partnership. The
partnership owns all the outstanding stock of corporation X and X owns sixty
(60) shares of the One hundred (100) outstanding shares of corporation Y. Under
paragraph 15B.3.1 of this section, the sixty (60) shares of Y constructively
owned by the partnership by reason of paragraph 15B.2.4 of this section is
treated as actually owned by the partnership for purposes of applying paragraph
15B.3.2 of these regulations. Therefore, A is considered as owning fifty-four
(54) shares of the Y stock (ninety percent (90%) of sixty (60) shares).
Example (2): Assume the same facts as in Example (1). Assume
further that B, who is twenty (20) years of age and the brother of A, directly
owns forty (40) shares of Y stock. Although the stock of Y owned by B is
considered as owned by C (the father of A and B) under subparagraph 15B.2.6.1
of this section, under paragraph 15B.3.2 of this section such stock may not be
treated as owned by C for purposes of applying subparagraph 15B.2.6.2 of this
section in order to make A the constructive owner of such stock.
Example (3): Assume the same facts assumed for purposes of
Example (2), and further assume that C has an option to acquire the forty (40)
shares of Y stock owned by his son, B. The rule contained in subparagraph (2)
of this paragraph does not prevent the reattribu-tion of such forty (40) shares
to A because, under subparagraph (3) of this paragraph, C is considered as
owning the forty (40) shares by reason of option attribution and not by reason
of family attribution. Therefore, since A satisfies the more-than-fifty percent
(50%) stock ownership test contained in paragraph 15B.2.6.2 of this section
with respect to Y, the forty (40) shares of Y stock constructively owned by C
are reattributed to A, and A is considered as owning a total of ninety-four
(94) shares of Y stock.
15B.4. Special rule.
15B.4.1.In general. - If the same stock of a
corporation is owned by two (2) or more persons, then such stock shall be
treated as owned by the person whose ownership of such stock results in the
corporation being a component member of a controlled group on a December
thirty-one which has at least one (1) other component member on such
date.
15B.4.2.Component member of
more than one (1) group.
15B.4.2.1.If, by
reason of paragraph 15B.4.1 of this section, a corporation would (but for this
subsection) become a component member of more than one (1) controlled group on
a December thirty-one, such corporation shall be treated as a component member
of only one (1) such controlled group on such date. The determination as to
which group such corporation is treated as a component member of shall be made
in accordance with the rules contained in subparagraphs 15B.4.2.2, 15B.4.2.3
and 15B.4.2.4 of this section.
15B.4.2.2.In any case in which a corporation
is a component member of a controlled group of corporations on a December
thirty-one as a result of treating each share of its stock as owned only by the
person who owns such share directly, then each such share shall be treated as
owned by the person who owns such share directly.
15B.4.2.3.If the application of subparagraph
15B.4.2.2 of this section does not result in a corporation being treated as a
component member of only one (1) controlled group on a December 31, then the
stock of such corporation described in paragraph 15B.4.1 of this section shall
be treated as owned by the one person described in such paragraph who owns,
directly and with the application of the rules contained in paragraphs 15B.2.1,
15B.2.2, 15B.2.3, and 15B.2.4 of this section, the stock possessing the
greatest percentage of the total value of shares of all classes of stock of the
corporation.
15B.4.2.4.If the
application of subparagraphs 15B.4.2.2 or 15B.4.2.3 of this section does not
result in a corporation being treated as a component member of only one (1)
controlled group of corporations on a December 31, then the determination of
that group of which such corporation is to be treated as a component member
shall be made by the Tax Commissioner unless such corporation files an election
as provided in this subsection. The election shall be in the form of a
statement, signed by a person authorized to act on behalf of such corporation,
designating the group in which the corporation has elected to be included. The
statement shall provide all the information with respect to stock ownership
which is reasonably necessary to satisfy the district director that the
corporation would, but for the election, be a component member of more than one
(1) controlled group. The statement shall be filed on or before the due date
(including extensions of time) for the filing of the income tax return of such
corporation for the taxable year. However, in the case of an election with
respect to December 31, 1990, the statement shall be considered as timely filed
if filed on or before December 15, 1991. Once filed, the election is
irrevocable and effective until subparagraph 15B.2.5.2 or subparagraph
15B.2.5.3 of these regulations apply or until there is a substantial change in
the stock ownership of such corporation.
15B.4.3.Examples. - The provisions of this
section may be illustrated by the following examples, in which each corporation
referred to uses the calendar year as its taxable year and the stated facts are
assumed to exist on each day of 1990 (unless otherwise provided in the
example):
Example 1: Jones owns all the stock of corporation X and has
an option to purchase from Smith all the outstanding stock of corporation Y.
Smith owns all the outstanding stock of corporation Z. Since the Y stock is
considered as owned by two (2) or more persons, under subparagraph 15B.3.2.2 of
this section, the Y stock is treated as owned only by Smith since he has direct
ownership of such stock. Therefore, on December 31, 1990, Y and Z are component
members of the same brother-sister controlled group. If, however, Smith had
owned his stock in corporation Z for less than one-half (1/2) of the number of
days of Z's 1990 taxable year, then under paragraph 15B.3.1 of this section the
Y stock would be treated as owned only by Jones since his ownership results in
Y being a component member of a controlled group on December 31, 1990.
Example 2: Individual H owns directly all the outstanding
stock of corporation M. W (the wife of H) owns directly all the outstanding
stock of corporation N. Neither spouse is considered as owning the stock
directly owned by the other because each of the conditions prescribed in
subparagraph 15B.2.5.2 of this section is satisfied with respect to each
corporation's 1990 taxable year. H owns directly sixty percent (60%) of the
only class of stock of corporation P and W owns the remaining forty percent
(40%) of the P stock. Under subparagraph 15B.4.2.3 of this section, the stock
of P is treated as owned only by H since H owns (directly and with the
application of the rules contained in paragraphs 15B.2.1, 15B.2.2, 15B.2.3, and
15B.2.4 of this section) the stock possessing the greatest percentage of the
total value of shares of all classes of stock of P. Accordingly, on December
31, 1990, P is treated as a component member of a brother-sister group
consisting of M and P.
Example 3: Unrelated individuals A and B each owns one-half
(1/2) of all the outstanding stock of corporation R, which in turn owns seventy
percent (70%) of the only class of outstanding stock of corporation S. The
remaining thirty percent (30%) of the stock of corporation S is owned by
unrelated individual C. Under the attribution rule of subsection 15B.2.4 of
this section, A and B each is considered as owning thirty-five percent (35%) of
the stock of corporation S. Accordingly, since 5 or fewer persons own at least
eighty percent (80%) of the stock of corporations R and S and also own more
than fifty percent (50%) identically (A and B's identical ownership each is
35%), on December 31, 1990, corporations R and S are treated as component
members of the same brother-sister controlled group.
