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Consider the following situations.

a.

Art owns 100% of Parent Corporation stock, and Parent owns 100% of Small's stock. Parent and Small file separate tax returns.

b.

Art owns one-third of Small's stock. The PRS Partnership, of which Phil, Robert, and Sue each have a one-third capital and profits interest, also owns one-third of Small's stock. The remaining shares of Small's stock are owned by 50 individuals unrelated to Art, Phil, Robert, and Sue.

c.

Art and his wife, Becky, each own 20% of Small's stock. The remaining shares of Small' s stock are owned by the Whitaker Family Trust. Becky and her three sisters each have a one-fourth beneficial interest in the trust.

Assume that personal holding company income comprises more than 60% of Small's adjusted ordinary gross income.

In which of the situations will Small Corporation be deemed to be a PHC?

a. Art owns 100% of Parent Corporation stock, and Parent owns 100% of Small's stock. Parent and Small file separate tax returns.

Small

deemed to be a PHC because Art

all of Small's stock under the

Sec. 541 (2) PHC requirement.

Sec. 542 (a)(2) stock ownership requirement.

Sec. 544 stock attribution rules.

b. Art owns one-third of Small's stock. The PRS Partnership, of which Phil, Robert, and Sue each have a one-third capital and profits interest, also owns one-third of Small's stock. The remaining shares of Small's stock are owned by 50 individuals unrelated to Art, Phil, Robert, and Sue.

Small

is

is not

deemed to be a PHC because Art plus Phil, Robert, and Sue are

considered to own two-thirds of Small's stock.

a partnership and it does not qualified under the Sec. 544 stock attribution rules.

unrelated.

c. Art and his wife, Becky, each own 20% of Small's stock. The remaining shares of Small's stock are owned by the Whitaker Family Trust. Becky and her three sisters each have a one-fourth beneficial interest in the trust.

Small

is

is not

deemed to be a PHC because Becky Whitaker

is deemed to own all

is only deemed to own 40%

only owned 20%

all of Small's stock,

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