(a) The following example illustrates the application of section 544(a)(2), relating to constructive ownership by reason of family and partnership ownership.
Example. The M Corporation at some time during the last half of the taxable year, had 1,800 shares of outstanding stock, 450 of which were held by various individuals having no relationship to one another and none of whom were partners, and the remaining 1,350 were held by 51 shareholders as follows: ----------------------------------------------------------------------------------------------------------------
(A)100 (B)20 (C)20 (D)20 (E)20His father...................... (AF)10 (BF)10 (CF)10 (DF)10 (EF)10His wife........................ (AW)10 (BW)40 (CW)40 (DW)40 (EW)40His brother..................... (AB)10 (BB)10 (CB)10 (DB)10 (EB)10His son......................... (AS)10 (BS)40 (CS)40 (DS)40 (ES)40His daughter by former marriage
(son's.........................
half-sister)................. (ASHS)10 (BSHS)40 (CSHS)40 (DSHS)40 (ESHS)40His brother's wife.............. (ABW)10 (BBW)10 (CBW)10 (DBW)160 (EBW)10His wife's father............... (AWF)10 (BWF)10 (CWF)110 (DWF)10 (EWF)10His wife's brother.............. (AWB)10 (BWB)10 (CWB)10 (DWB)10 (EWB)10His wife's brother's wife....... (AWBW)10 (BWBW)10 (CWBW)10 (DWBW)10 (EWBW)110Individual's partner............ (AP)10 .............. .............. .............. ..............---------------------------------------------------------------------------------------------------------------- By applying the statutory rule provided in section 544(a)(2) five individuals own more than 50 percent of the outstanding stock as follows: A (including AF, AW, AB, AS, ASHS, AP).......................... 160B (including BF, BW, BB, BS, BSHS).............................. 160CW (including C, CS, CWF, CWB).................................. 220DB (including D, DF, DBW)....................................... 200EWB (including EW, EWF, EWBW)................................... 170
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Total, or more than 50 percent.............................. 910
Individual A represents the obvious case where the head of the family owns the bulk of the family stock and naturally is the head of the group. A's partner owns 10 shares of the stock. Individual B represents the case where he is still head of the group because of the ownership of stock by his immediate family. Individuals C and D represent cases where the individuals fall in groups headed in C's case by his wife and in D's case by his brother because of the preponderance of holdings on the part of relatives by marriage. Individual E represents the case where the preponderant holdings of others eliminate that individual from the group.
(b) For the restriction on the applicability of the family and partnership ownership rules of this section, see paragraph (b) of Sec. 1.544-1. For rules relating to constructive ownership as actual ownership, see Sec. 1.544-6.