---
kind: "section"
citation: "26 U.S.C. § 544"
title: "26"
title_heading: "Internal Revenue Code"
number: "544"
heading: "Rules for determining stock ownership"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/544"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter G — Corporations Used to Avoid Income Tax on Shareholders"
  - "Part II — Personal Holding Companies"
---

# §544. Rules for determining stock ownership

- (a) **Constructive ownership—** For purposes of determining whether a corporation is a [personal holding company](/usc/26/542.md?p=a), insofar as such [determination](/usc/26/1313.md?p=a) is based on [stock](/usc/26/1504.md?p=a-4) ownership under [section 542(a)(2)](/usc/26/542.md?p=a-2), [section 543(a)(7)](/usc/26/543.md?p=a-7), [section 543(a)(6)](/usc/26/543.md?p=a-6), or [section 543(a)(4)](/usc/26/543.md?p=a-4)—
  - (1) **Stock not owned by individual—** [Stock](/usc/26/1504.md?p=a-4) owned, directly or [indirectly](/usc/26/101.md?p=a-3-B), by or for a corporation, [partnership](/usc/26/761.md?p=a), [estate](/usc/26/1361.md?p=c-3), or trust shall be considered as being owned proportionately by its shareholders, [partners](/usc/26/761.md?p=b), or beneficiaries.
  - (2) **Family and partnership ownership—** An individual shall be considered as owning the [stock](/usc/26/1504.md?p=a-4) owned, directly or [indirectly](/usc/26/101.md?p=a-3-B), by or for his family or by or for his [partner](/usc/26/761.md?p=b). For purposes of this paragraph, the family of an individual includes only his [brothers](/usc/26/152.md?p=f-4) and [sisters](/usc/26/152.md?p=f-4) (whether by the whole or half blood), spouse, ancestors, and lineal descendants.
  - (3) **Options—** If any person has an option to acquire [stock](/usc/26/1504.md?p=a-4), such [stock](/usc/26/1504.md?p=a-4) 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](/usc/26/1504.md?p=a-4).
  - (4) **Application of family-partnership and option rules—** Paragraphs [(2)](#a-2) and [(3)](#a-3) shall be applied—
    - (A) for purposes of the [stock](/usc/26/1504.md?p=a-4) ownership requirement provided in [section 542(a)(2)](/usc/26/542.md?p=a-2), if, but only if, the effect is to make the corporation a [personal holding company](/usc/26/542.md?p=a);
    - (B) for purposes of [section 543(a)(7)](/usc/26/543.md?p=a-7) (relating to personal service [contracts](/usc/26/101.md?p=f-3-A)), of [section 543(a)(6)](/usc/26/543.md?p=a-6) (relating to use of [property](/usc/26/317.md?p=a) by shareholders), or of [section 543(a)(4)](/usc/26/543.md?p=a-4) (relating to copyright royalties), if, but only if, the effect is to make the amounts therein referred to includible under such paragraph as [personal holding company](/usc/26/542.md?p=a) income.
  - (5) **Constructive ownership as actual ownership—** [Stock](/usc/26/1504.md?p=a-4) constructively owned by a person by reason of the application of paragraph [(1)](#a-1) or [(3)](#a-3), shall, for purposes of applying paragraph [(1)](#a-1) or [(2)](#a-2), be treated as actually owned by such person; but [stock](/usc/26/1504.md?p=a-4) constructively owned by an individual by reason of the application of [paragraph (2)](#a-2) shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such [stock](/usc/26/1504.md?p=a-4).
  - (6) **Option rule in lieu of family and partnership rule—** If [stock](/usc/26/1504.md?p=a-4) may be considered as owned by an individual under either paragraph [(2)](#a-2) or [(3)](#a-3) it shall be considered as owned by him under [paragraph (3)](#a-3).
- (b) **Convertible securities—** Outstanding [securities](/usc/26/368.md?p=a-2-F-vii) convertible into [stock](/usc/26/1504.md?p=a-4) (whether or not convertible during the taxable year) shall be considered as outstanding [stock](/usc/26/1504.md?p=a-4)—
  - (1) for purposes of the [stock](/usc/26/1504.md?p=a-4) ownership requirement provided in [section 542(a)(2)](/usc/26/542.md?p=a-2), but only if the effect of the inclusion of all such [securities](/usc/26/368.md?p=a-2-F-vii) is to make the corporation a [personal holding company](/usc/26/542.md?p=a);
  - (2) for purposes of [section 543(a)(7)](/usc/26/543.md?p=a-7) (relating to personal service [contracts](/usc/26/101.md?p=f-3-A)), but only if the effect of the inclusion of all such [securities](/usc/26/368.md?p=a-2-F-vii) is to make the amounts therein referred to includible under such paragraph as [personal holding company](/usc/26/542.md?p=a) income;
  - (3) for purposes of [section 543(a)(6)](/usc/26/543.md?p=a-6) (relating to the use of [property](/usc/26/317.md?p=a) by shareholders), but only if the effect of the inclusion of all such [securities](/usc/26/368.md?p=a-2-F-vii) is to make the amounts therein referred to includible under such paragraph as [personal holding company](/usc/26/542.md?p=a) income; and
  - (4) for purposes of [section 543(a)(4)](/usc/26/543.md?p=a-4) (relating to copyright royalties), but only if the effect of the inclusion of all such [securities](/usc/26/368.md?p=a-2-F-vii) is to make the amounts therein referred to includible under such paragraph as [personal holding company](/usc/26/542.md?p=a) income.

  The requirement in paragraphs [(1)](#b-1), [(2)](#b-2), [(3)](#b-3), and [(4)](#b-4) that all convertible [securities](/usc/26/368.md?p=a-2-F-vii) must be included if any are to be included shall be subject to the exception that, where some of the outstanding [securities](/usc/26/368.md?p=a-2-F-vii) are convertible only after a later date than in the case of others, the class having the earlier conversion date may be included although the others are not included, but no convertible [securities](/usc/26/368.md?p=a-2-F-vii) shall be included unless all outstanding [securities](/usc/26/368.md?p=a-2-F-vii) having a prior conversion date are also included.


## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 188; Pub. L. 86–435, § 1(c), (d), Apr. 22, 1960, 74 Stat. 78; Pub. L. 88–272, title II, § 225(k)(3), Feb. 26, 1964, 78 Stat. 93.)

## Notes

### Editorial Notes

### Amendments

1964—Pub. L. 88–272 substituted “section 543(a)(7)” for “section 543(a)(5)”, and “section 543(a)(4)” for “section 543(a)(9),” wherever appearing.

1960—Subsec. (a). Pub. L. 86–435, § 1(c)(1), inserted reference to section 543(a)(9) in introductory provisions.

Subsec. (a)(4)(B). Pub. L. 86–435, § 1(c)(2), included reference to section 543(a)(9).

Subsec. (b). Pub. L. 86–435, § 1(d), added par. (4), and inserted reference to par. (4) in last sentence.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1964 Amendment

Amendment by Pub. L. 88–272 applicable to taxable years beginning after Dec. 31, 1963, see section 225(l)(1) of Pub. L. 88–272 set out as a note under section 316 of this title.

### Effective Date of 1960 Amendment

Amendment by Pub. L. 86–435 applicable only with respect to taxable years beginning after Dec. 31, 1959, see section 2 of Pub. L. 86–435, set out as a note under section 543 of this title.