Subpart C - Definitions; Constructive Ownership of Stock

26 USC 316 - Dividend defined

(a) General rule 
For purposes of this subtitle, the term dividend means any distribution of property made by a corporation to its shareholders
(1) out of its earnings and profits accumulated after February 28, 1913, or
(2) out of its earnings and profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made.

Except as otherwise provided in this subtitle, every distribution is made out of earnings and profits to the extent thereof, and from the most recently accumulated earnings and profits. To the extent that any distribution is, under any provision of this subchapter, treated as a distribution of property to which section 301 applies, such distribution shall be treated as a distribution of property for purposes of this subsection.

(b) Special rules 

(1) Certain insurance company dividends 
The definition in subsection (a) shall not apply to the term dividend as used in subchapter L in any case where the reference is to dividends of insurance companies paid to policyholders as such.
(2) Distributions by personal holding companies 

(A) In the case of a corporation which
(i) under the law applicable to the taxable year in which the distribution is made, is a personal holding company (as defined in section 542), or
(ii) for the taxable year in respect of which the distribution is made under section 563 (b) (relating to dividends paid after the close of the taxable year), or section 547 (relating to deficiency dividends), or the corresponding provisions of prior law, is a personal holding company under the law applicable to such taxable year,

the term dividend also means any distribution of property (whether or not a dividend as defined in subsection (a)) made by the corporation to its shareholders, to the extent of its undistributed personal holding company income (determined under section 545 without regard to distributions under this paragraph) for such year.

(B) For purposes of subparagraph (A), the term distribution of property includes a distribution in complete liquidation occurring within 24 months after the adoption of a plan of liquidation, but
(i) only to the extent of the amounts distributed to distributees other than corporate shareholders, and
(ii) only to the extent that the corporation designates such amounts as a dividend distribution and duly notifies such distributees of such designation, under regulations prescribed by the Secretary, but
(iii) not in excess of the sum of such distributees allocable share of the undistributed personal holding company income for such year, computed without regard to this subparagraph or section 562 (b).
(3) Deficiency dividend distributions by a regulated investment company or real estate investment trust 
The term dividend also means any distribution of property (whether or not a dividend as defined in subsection (a)) which constitutes a deficiency dividend as defined in section 860 (f).

26 USC 317 - Other definitions

(a) Property 
For purposes of this part, the term property means money, securities, and any other property; except that such term does not include stock in the corporation making the distribution (or rights to acquire such stock).
(b) Redemption of stock 
For purposes of this part, stock shall be treated as redeemed by a corporation if the corporation acquires its stock from a shareholder in exchange for property, whether or not the stock so acquired is cancelled, retired, or held as treasury stock.

26 USC 318 - Constructive ownership of stock

(a) General rule 
For purposes of those provisions of this subchapter to which the rules contained in this section are expressly made applicable
(1) Members of family 

(A) In general 
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.
(B) Effect of adoption 
For purposes of subparagraph (A)(ii), a legally adopted child of an individual shall be treated as a child of such individual by blood.
(2) Attribution from partnerships, estates, trusts, and corporations 

(A) 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.
(B) From trusts 

(i) 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.
(ii) Stock owned, directly or indirectly, by or for any portion of a trust of which a person is considered the owner under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners) shall be considered as owned by such person.
(C) From 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 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.
(3) Attribution to partnerships, estates, trusts, and corporations 

(A) 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.
(B) To trusts 

(i) 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 beneficiarys interest in the trust is a remote contingent interest. For purposes of this clause, 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.
(ii) Stock owned, directly or indirectly, by or for a person who is considered the owner of any portion of a trust under subpart E of part I of subchapter J (relating to grantors and others treated as substantial owners), shall be considered as owned by the trust.
(C) 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.
(4) 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.
(5) Operating rules 

(A) In general 
Except as provided in subparagraphs (B) and (C), stock constructively owned by a person by reason of the application of paragraph (1), (2), (3), or (4), shall, for purposes of applying paragraphs (1), (2), (3), and (4), be considered as actually owned by such person.
(B) Members of family 
Stock constructively owned by an individual by reason of the application of paragraph (1) shall not be considered as owned by him for purposes of again applying paragraph (1) in order to make another the constructive owner of such stock.
(C) Partnerships, estates, trusts, and corporations 
Stock constructively owned by a partnership, estate, trust, or corporation by reason of the application of paragraph (3) shall not be considered as owned by it for purposes of applying paragraph (2) in order to make another the constructive owner of such stock.
(D) Option rule in lieu of family rule 
For purposes of this paragraph, if stock may be considered as owned by an individual under paragraph (1) or (4), it shall be considered as owned by him under paragraph (4).
(E) S corporation treated as partnership 
For purposes of this subsection
(i) an S corporation shall be treated as a partnership, and
(ii) any shareholder of the S corporation shall be treated as a partner of such partnership.

The preceding sentence shall not apply for purposes of determining whether stock in the S corporation is constructively owned by any person.

(b) Cross references 
For provisions to which the rules contained in subsection (a) apply, see
(1) section 302 (relating to redemption of stock);
(2) section 304 (relating to redemption by related corporations);
(3) section 306 (b)(1)(A) (relating to disposition of section 306 stock);
(4) section 338 (h)(3) (defining purchase);
(5) section 382(l)(3) (relating to special limitations on net operating loss carryovers);
(6) section 856 (d) (relating to definition of rents from real property in the case of real estate investment trusts);
(7) section 958 (b) (relating to constructive ownership rules with respect to controlled foreign corporations); and
(8) section 6038 (e)(2) (relating to information with respect to certain foreign corporations).