In a previous article, I discussed the IRC (Internal Revenue Code) §318 sidewise attribution limitation. This limitation was the last piece in the jigsaw puzzle of the §318 entity-member attribution rules; now, we are ready to summarize these rules in light of this exception. This is the purpose of this article – state the §318 Entity-Member Attribution summary.
§318 Entity-Member Attribution Summary: Definition of Member
For the purpose of this §318 Entity-Member Attribution summary, I am using the word “member” to describe partners, shareholders and beneficiaries.
§318 Entity-Member Attribution Summary: Limitations
This summary of §318 entity-member attribution rules is limited only to situations where a member owns at 50% of the value of stock (in case of a corporation) and a beneficiary of a trust does not hold a remote and contingent interest in a trust. The readers need to keep these limitations in mind as they apply the summary below to a particular fact pattern.
Moreover, the readers must remember that this summary of the §318 Entity-Member attribution rules may be altered when one applies it within the context of a specific tax provision. Hence, the readers must check for any modification of these §318 attribution rules contained in that specific tax provision.
§318 Entity-Member Attribution Summary
Now that we understand the limitations above, we can state the following summary of the §318 Entity-Member attribution rules:
- All corporate stock is attributed to an entity from its member irrespective of whether the member owns this stock actually or constructively;
- If corporate stock is attributed from an entity to its member, such attribution will be done on a proportionate basis; and
- The following corporate stock is attributed from an entity to its member on a proportionate basis:
(a). Corporate stock which the entity actually owns;
(b). Corporate stock which the entity constructively owns under the option rules; and
(c). Corporate stock which the entity constructively owns because it is a member of some other entity.
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