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PUBLIC LAW 88-272-FEB. 26, 1964
[78 STAT.
" (A) The individual does not, at any time during such taxable year, own directly any stock in such corporation; " (B) The individual is not a director or employee and does not participate in the management of such corporation at any time during such taxable year; " (C) Not more the«i 50 percent of such corporation's gross income for such taxable year was derived from royalties, rents, dividends, interest, and annuities; and " (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 ri^ht to dispose of such stock and which run in favor of the individual or his children who have not attained the age of 21 years. " (6)
CHILDREN, GRANDCHILDREN, PARENTS, AND GRANDPARENTS.—
" (A) MINOR CHILDREN.—An individual shall be considered as owning stock owned, directly or indirectly, by or for his children who have not attained the age of 21 years, and, if the individual has not attained the age of 21 years, the stock owned, directly or indirectly, by or for his parents. "(B)
ADULT CHILDREN AND GRANDCHILDREN.—An individ-
ual who owns (within the meaning of subsection (d)(2), but without regard to this subparagraph) more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock in a corporation shall be considered as owning the stock in such corporation owned, directly or indirectly, by or for his parents, grandparents, grandchildren, and children who have attained the age of 21 years. " (C) ADOPTED CHILD.—For purposes of this section, a legally adopted child of an individual shall be treated as a child of such individual by blood. "(f)
OTHER DEFINITIONS AND RULES.— "(1) EMPLOYEE DEFINED.—For purposes
of this section the ferm 'employee' has the same meaning such term is given in sec68A Stat. 452. 26 USC 3306.
tlOn 3 3 0 6 (1). ^'(2) OPERATING RULES. -
" (A) IN GENERAL.—Exccpt as provided in subparagraph (B), stock constructively owned by a person by reasoniof the application of paragraph (1), (2), (3), (4), (5), or (6) of subsection (e) shall, for purposes of applying such paragraphs, be treated as actually owned by such person. " (B) MEMBERS OF FAMILY.—Stock constructively owned by an individual by reason of the application of paragraph (5) or (6) of subsection (e) shall not be treated as owned by him for purposes of again applying such paragraphs in order t-o make another the constructive owner of such stock. " (3) SPECIAL RULES.—For purposes of this section— " (A) If stock may be considered as owned by a person under subsection (e)(1) and under any other paragraph of subsection (e), it shall be considered as owned by him under subsection (e)(1). " (B) I f stock is owned (within the meaning of subsection (d)) by two or more persons, such stock shall be considered as owned by the person whose ownership of such stock results in the corporation being a component member of a controlled group. I T by reason of the preceding sentence, a corporation would (but for this sentence) become a component member of two controlled groups, it shall be treated as a component member of one controlled group. The determination as to
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