Reg. § 1.318-4 Constructive ownership as actual ownership; exceptions.
(a) In general Section provides that, except as provided in section (B) and (C), stock constructively owned by a person by reason of the application of section (1), (2), (3), or (4) shall be considered as actually owned by such person for purposes of applying section (1), (2), (3), and (4). For example, if a trust owns 50 percent of the stock of corporation X, stock of corporation Y owned by corporation X which is attributed to the trust may be further attributed to the beneficiaries of the trust.
(b) Constructive family ownership Section provides that stock constructively owned by an individual by reason of ownership by a member of his family shall not be considered as owned by him for purposes of making another family member the constructive owner of such stock under section . For example, if F and his two sons, A and B, each own one-third of the stock of a corporation, under section , A is treated as owning constructively the stock owned by his father but is not treated as owning the stock owned by B. Section prevents the attribution of the stock of one brother through the father to the other brother, an attribution beyond the scope of section directly.
(c) Reattribution
(1) Section provides that stock constructively owned by a partnership, estate, trust, or corporation by reason of the application of section shall not be considered as owned by it for purposes of applying section in order to make another the constructive owner of such stock. For example, if two unrelated individuals are beneficiaries of the same trust, stock held by one which is attributed to the trust under section is not reattributed from the trust to the other beneficiary. However, stock constructively owned by reason of section may be reattributed under section . Thus, for example, if all the stock of corporations X and Y is owned by A, stock of corporation Z held by X is attributed to Y through A.
(2) Section does not prevent reattribution under section of stock constructively owned by an entity under section if the stock is also constructively owned by the entity under section . For example, if individuals A and B are beneficiaries of a trust and the trust has an option to buy stock from A, B is considered under section as owning a proportionate part of such stock.
(3) Section is effective on and after August 31, 1964, except that for purposes of sections and it does not apply with respect to distributions in payment for stock acquisitions or redemptions if such acquisitions or redemptions occurred before August 31, 1964.
[T.D. 6969, 33 FR 11999, Aug. 23, 1968]