Attribution of Ownership Rules - Definition of Disqualified Persons


Indirect owner­ship of stock in a corporation, profits interest in a partnership, or beneficial interest in a trust, es­tate, or unincorporated enterprise is taken into account for determining whether:

  1. The stockholdings, or profits or beneficial interest, amount to more than 20 percent of the total combined voting power of the corpo­ration or more than 20 percent of the profits or beneficial interests, or
  2. More than 35 percent of the total combined vot­ing power of the corporation or more than 35 percent of the profits or beneficial interests are owned by persons described in cate­gories (1), (2), (3), or (4) under Disqualified Persons.

The following rules apply for determining the ownership of stock or profits or beneficial inter­ests:

  1. Stock (or profits or beneficial interests) owned directly or indirectly by or for a cor­poration, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries,
  2. or indirectly, by or for his or her family members.  An exception to this rule is that, for the more than 35 percent owner­ship described in categories (5), (6), and (7), stock (or profits or beneficial interests) is not treated as constructively owned by an individual solely because that individual is a member of the family of another dis­qualified person.  For purposes of these 35 percent ownership rules, an individual will be treated as a constructive owner only if that individual himself or herself is a substantial contributor, a foundation manager, or a 20 percent owner of the combined voting power, profits interest, or beneficial interest, of a substantial contributor.
  3. An individual’s family includes only those persons described in Member of the family, and
  4. Any stock holdings, profits interest, or ben­eficial interest, that have been counted once (whether because of actual or con­structive ownership) in applying categories (5), (6), and (7) may not be counted a second time.

Combined voting power includes voting power represented by actual or constructive holdings of voting stock, but does not include voting rights held only as a director or trustee.

Voting power includes outstanding voting power and does not include voting power obtain­able, but not obtained, such as voting power obtainable by converting securities or nonvoting stock into voting stock, by exercising warrants or options to obtain voting stock, and voting power available to preferred shareholders if dividends on preferred stock are in arrears.

The profits interest of a partner is the partner’s distributive share of partnership in­come.

The beneficial interest in an unincorpor­ated enterprise, other than a trust or estate, includes any right to receive a share of distribu­tions from the profits of the enterprise, or if there is no profit-sharing agreement, the right to re­ceive a share of the assets on liquidation of the enterprise, except as a creditor or employee.  When no agreement fixing the rights of the par­ticipants in the enterprise exists, the fraction of the respective interests of each participant in the enterprise will be determined by dividing the total investment or contributions to capital made or obligated to be made by the participant by the amount of all investments and capital contribu­tions made by all participants.

The beneficial interest in a trust will be determined in proportion to the person’s actua­rial interest in the trust.

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