52STAT.] 75TH CONG., 3D SESS.-CH. 289--MAY 28, 1938 but does not include amounts constituting personal holding com- pany income under subsection (f). (h) MINERAL, OrL, OR GAS ROYALTIES. -Mineral, oil, or gas royal- ties, unless (1) constituting 50 per centum or more of the gross income, and (2) the deductions allowable under section 23 (a) (relating to expenses) other than compensation for personal services rendered by shareholders, constitute 15 per centum or more of the gross income. SEC. 404 . STOCK OWNERSHIP. (a) CONSTRUCTIVE OWNERSHIP. - For the purpose of determining whether a corporation is a personal holding company, insofar as such determination is based on stock ownership under section 402 (a) (2), section 403 (e), or section 403 (f)- (1) STOCK NOT OWNED BY INDIVIDUAL. - Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries. (2) FAMILY AND PARTNERSHIP OWNERSHIP. -An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family or by or for his partner. For the purposes of this paragraph the family of an individual includes only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants. (3) OPTIONS.-If any person has an option to acquire stock such stock shall be considered as owned by such person. For the 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. (4) APPLICATION OF FAMILY-PARTNERSHIP AND OPTION RULES .- Paragraphs (2) and (3) shall be applied- (A) For the purposes of the stock ownership requirement provided in section 402 (a) (2), if but only if, the effect is to make the corporation a personal holding company; (B) For the purposes of section 403 (e) (relating to personal service contracts), or of section 403 (f) (relating to the use of property by shareholders), if, but only if, the effect is to make the amounts therein referred to includible under such subsection as personal holding company income. (5) CONSTRUCTIVE OWNERSHIP AS ACTUAL OWNFRSHIP.- Stock constructively owned by a person by reason of the application of paragraph (1) or (3) shall, for the purpose of applying paragraph (1) or (2), be treated as actually owned by such person; but stock constructively owned by an individual by reason of the application of paragraph (2) shall not be treated as owned by him for the purpose of again applying such para- graph in order to make another the constructive owner of such stock. (6) OPTION RULE IN LIEU OF FAMILY AND PARTNERSHIP RULE.- If stock may be considered as owned by an individual under either paragraph (2) or (3) it shall be considered as owned by him under paragraph (3). (b) CONVERTIBLE SECURIIE.- Outstanding securities convertible into stock (whether or not convertible during the taxable year) shall be considered as outstanding stock- (1) For the purpose of the stock ownership requirement pro- vided in section 402 (a) (2), but only if the effect of the inclusion 559 Mineral, oil, or gas royalties. Ante, p. 460. Stock ownership. Constructive owner- ship. Ante, pp. 557, 558. Stock not owned by individual. Family and part- nership ownership. Options. Application of fam- ily-partnership and option rules. Constructive owner ship as actual owner- ship. Option rule in lieu of family and partner- ship rule. Convertible securi- ties. Ante, p. 557.
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