West Virginia Code of State Rules › Agency 110 - Tax › Title 110 - LEGISLATIVE RULE STATE TAX DEPARTMENT › Series 110-13C - Business Investment And Jobs Expansion Tax Credit, Corporation Headquarters Relocation Tax Credit, Sma › Section 110-13C-15B - Rules for determining stock ownership

Current through Register Vol. XLI, No. 28, July 12, 2024
15B.1. In general. - In determining stock
				ownership for purposes of Section
				110-13C-15
				of these regulations, and this section, the constructive ownership rules of
				subsection 15B.2 of this section apply to the extent such rules are referred to
				in such sections. The application of such rules shall be subject to the
				operating rules and special rules contained in subsection 15B.3 and 15B.4 of
				this section.
15B.2. Constructive
				ownership.
15B.2.1. Options. - If a person
				has an option to acquire any outstanding stock of a corporation, such stock
				shall be considered as owned by such person. For purposes of this subsection,
				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. For example, assume
				Smith owns an option to purchase one hundred (100) shares of the outstanding
				stock of M Corporation. Under this subsection, Smith is considered to own such
				one hundred (100) shares. The result would be the same if Smith owned an option
				to acquire the option (or one of a series of options) to purchase one hundred
				(100) shares of M stock.
15B.2.2.Attribution from partnerships.
15B.2.2.1.Stock owned, directly or
				indirectly, by or for a partnership shall be considered as owned by any partner
				having an interest of five percent (5%) or more in either the capital or
				profits of the partnership in proportion to his interest in capital or profits,
				whichever such proportion is the greater.
15B.2.2.2.The provisions of this subsection
				may be illustrated by the following example:
Example: Green, Jones, and White, unrelated individuals, are
				  partners in the GJW partnership. The partners' interests in the capital and
				  profits of the partnership are as follows:
Partner
Capital
Profits
Green
36%
25%
Jones
50%
71%
White
4%
4%
The GJW partnership owns the entire outstanding stock (one
				  hundred (100) shares) of X Corporation. Under this subparagraph, Green is
				  considered to own the X stock owned by the partnership in proportion to his
				  interest in capital (36%) or profits (25%), whichever such proportion is the
				  greater. Therefore, Green is considered to own thirty-six (36) shares of the X
				  stock. However, since Jones has a greater interest in the profits of the
				  partnership, he is considered to own the X stock in proportion to his interest
				  in such profits. Therefore, Jones is considered to own seventy-one (71) shares
				  of the X stock. Since White does not have an interest of five percent (5%) or
				  more in either the capital or profits of the partnership, he is not considered
				  to own any shares of the X stock.
15B.2.3.Attribution from estates or trusts.
15B.2.3.1.Stock owned, directly or
				indirectly, by or for an estate or trust shall be considered as owned by any
				beneficiary who has an actuarial interest of five percent (5%) or more in such
				stock, to the extent of such actuarial interest. For purposes of this
				subsection, the actuarial interest of each beneficiary shall be determined by
				assuming the maximum exercise of discretion by the fiduciary in favor of such
				beneficiary and the maximum exercise of discretion by the fiduciary in favor of
				such beneficiary and the maximum use of such stock to satisfy his rights as a
				beneficiary. A beneficiary of an estate or trust who cannot under any
				circumstances receive any interest in stock held by the estate or trust,
				including the proceeds from the disposition thereof, or the income therefrom,
				does not have an actuarial interest in such stock. Thus, where stock owned by a
				decedent's estate has been specifically bequeathed to certain beneficiaries and
				the remainder of the estate is bequeathed to other beneficiaries, the stock is
				attributable only to the beneficiaries to whom it is specifically bequeathed.
				Similarly, a remainderman of a trust who cannot under any circumstances receive
				any interest in the stock of a corporation which is a part of the corpus of the
				trust (including any accumulated income therefrom or the proceeds from a
				disposition thereof) does not have an actuarial interest in such stock.
				However, an income beneficiary of a trust does have an actuarial interest in
				stock if he has any right to the income from such stock even though under the
				terms of the trust instrument such stock can never be distributed to him. The
				factors and methods prescribed for use in ascertaining the value of an interest
				in property for federal estate tax purposes shall be used for purposes of this
				subdivision in determining a beneficiary's actuarial interest in stock owned
				directly or indirectly by or for a trust.
15B.2.3.2.For the purposes of this
				subsection, property of a decedent shall be considered as owned by his estate
				if such property is subject to administration by the executor or administrator
				for the purposes of paying claims against the estate and expenses of
				administration notwithstanding that, under local law, legal title to such
				property vests in the decedent's heirs, legatees, or devisees immediately upon
				death. With respect to an estate, the term "Beneficiary" includes any person
				entitled to receive property of the decedent pursuant to a will or pursuant to
				laws of descent and distribution. A person shall no longer be considered a
				beneficiary of an estate when all the property to which the beneficiary is
				entitled has been received by such person, when the beneficiary no longer has a
				claim against the estate arising out of having been a beneficiary, and when
				there is only a remote possibility that it will be necessary for the estate to
				seek the return of property or to seek payment from the beneficiary by
				contribution or otherwise to satisfy claims against the estate or expenses of
				administration. When pursuant to the preceding sentence, a person ceases to be
				a beneficiary, stock owned by the estate shall not thereafter be considered
				owned by the beneficiary.
15B.2.3.3.Stock owned, directly or
				indirectly, by or for any portion of a trust of which a person is considered
				the owner under subpart E, part I, subchapter J of the Internal Revenue Code
				(relating to grantors and others treated as substantial owners) is considered
				as owned by such person.
15B.2.3.4.This subsection does not apply to
				stock owned by any employees' trust described in Internal Revenue Code '401(a)
				which is exempt from tax under Internal Revenue Code
				'501(a).
15B.2.4.Attribution from corporations.
15B.2.4.1.Stock owned, directly or
				indirectly, by or for a corporation shall be considered as owned by any person
				who owns (within the meaning of Section
				110-13C-15.4
				of these regulations five percent 5%) or more in value of its stock 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.
15B.2.4.2.The provisions of this subparagraph
				may be illustrated by the following example:
Example: Brown, an individual, owns sixty (60) shares of the
				  one hundred (100) shares of the only class of outstanding stock of corporation
				  P. Smith, an individual, owns four (4) shares of the P stock, and corporation X
				  owns thirty-six (36) shares of the P stock. Corporation P owns, directly and
				  indirectly, fifty (50) shares of the stock of Corporation S. Under this
				  subsection, Brown is considered to own thirty (30) shares of the S stock
				  (60/100 X 50), and X is considered to own eighteen (18) shares of the S stock
				  (36/100 X 50).
Since Smith does not own five percent (5%) or more in value
				  of the P stock, he is not considered as owning any of the S stock owned by P.
				  If, in this example, Smith's wife had owned directly 1 share of the P stock,
				  Smith (and his wife) would each own five (5) shares of the P stock, and
				  therefore Smith (and his wife) would be considered as owning 2.5 shares of the
				  S stock (5/100 X 50).
15B.2.5.Spouse.
15B.2.5.1.Except as provided in subparagraph
				15B.2.5.2 of this section, an individual shall be considered to own the stock
				owned, directly or indirectly, by or for his spouse, other than a spouse who is
				legally separated from the individual under a decree of divorce, whether
				interlocutory or final, or a decree of separate maintenance.
15B.2.5.2.An individual shall not be
				considered to own stock in a corporation owned, directly or indirectly, by or
				for his spouse on any day of a taxable year of such corporation, provided that
				each of the following conditions are satisfied with respect to such taxable
				year:
15B.2.5.2.a.Such individual does not,
				at any time during such taxable year, own directly any stock in such
				corporation.
15B.2.5.2.b.Such
				individual is not a member of the board of directors or an employee of such
				corporation and does not participate in the management of such corporation at
				any time during such taxable years.
15B.2.5.2.c.Not more than fifty percent (50%)
				of such corporation's gross income for such taxable year was derived from
				royalties, rents, dividends, interest, and annuities.
15B.2.5.2.d.Such stock in such corporation is
				not, at any time during such taxable year, subject to conditions which
				substantially restrict or limit the spouse's right to dispose of such stock and
				which run in favor of the individual or his children who have not attained the
				age of twenty-one (21) years. The principles of subsection 15A.2.2.3 of these
				regulations shall apply in determining whether a condition is a condition
				described in the preceding sentence.
15B.2.5.3.For purposes of subparagraph
				15B.2.5.2 of this section, the gross income of a corporation for a taxable year
				shall be determined under I.R.C. '61 and the regulations thereunder. The terms
				"royalties," "rents," "dividends," "interest," and "annuities" shall have the
				same meanings such terms are given for purposes of I.R.C.
				'1244(c).
15B.2.6.Children, grandchildren, parents, and
				grandparents.
15B.2.6.1.An individual shall
				be considered to own the stock owned, directly or indirectly, by or for his
				children who have not attained the age of twenty-one (21) years, and, if the
				individual has not attained the age of twenty-one (21) years, the stock owned,
				directly or indirectly, by or for his parents.
15B.2.6.2.If an individual owns (directly,
				and with the application of the rules of this section but without regard to
				this subsection) stock possessing more than fifty percent (50%) of the total
				combined voting power of all classes of stock entitled to vote or more than
				fifty percent (50%) of the total value of shares of all classes of stock in a
				corporation, then such individual shall be considered to own the stock in such
				corporation owned, directly or indirectly, by or for his parents, grandparents,
				and children who have attained the age of twenty-one (21) years. In determining
				whether the stock owned by an individual possesses the requisite percentage of
				the total combined voting power of all classes of stock entitled to vote of a
				corporation.
15B.2.6.3.For purposes
				of W. Va. Code '11-13C-14
				and Sections
				110-13C-15
				through
				110-13C-15C
				of these regulations, a legally adopted child of an individual shall be treated
				as a child of such individual by blood.
15B.2.6.4.The provisions of this paragraph
				may be illustrated by the following example:
Example:
(a) Facts.
				- Individual F owns directly forty (40) shares of the one hundred (100) shares
				of the only class of stock of Z Corporation. His son, M (twenty (20) years of
				age), owns directly thirty (30) shares of such stock, and his son, A (thirty
				(30) years of age), owns directly twenty (20) shares of such stock. The
				remaining ten (10) shares of the Z stock are owned by an unrelated
				person.
(b) F's ownership. -
				Individual F owns forty (40) shares of the Z stock directly and is considered
				to own the thirty (30) shares of Z stock owned directly by M. Since, for
				purposes of the more-than-fifty percent (50%) stock ownership test contained in
				subsection 15B.2.6.2, F is treated as owning seventy (70) shares of seventy
				percent (70%) of the total voting power and value of the Z stock, he is also
				considered as owning the twenty (20) shares owned by his adult son, A.
				Accordingly, F is considered as owning a total of ninety (90) shares of the Z
				stock.
(c) M's ownership. - Minor
				son, M, owns thirty (30) shares of the Z stock directly, and is considered to
				own the forty (40) shares of Z stock owned directly by his father, F. However,
				M is not considered to own the twenty (20) shares of Z stock owned directly by
				his brother, A, and constructively by F, because stock constructively owned by
				F by reason of family attribution is not considered as owned by him for
				purposes of making another member of his family the constructive owner of such
				stock. See Section 15B.3.2 of these regulations. Accordingly, M owns and is
				considered as owning a total of seventy (70) shares of the Z stock.
(d) A's ownership. - Adult son, A, owns twent
				(20) shares of the Z stock directly. Since, for purposes of the more-than-fifty
				percent (50%) stock ownership test contained in subsection 15B.2.6.2 of this
				section, A is treated as owning only the Z stock which he owns directly, he
				does not satisfy the condition precedent for the attribution of Z stock from
				his father. Accordingly, A is treated as owning only the twenty (20) shares of
				Z stock which he owns directly.