Article Title

Family Attribution


Alan Sunukjian


The concept of attribution (constructive ownership) is one of the most difficult concepts to understand and correctly apply in tax law today. Attribution is the imposition of stock ownership upon an individual or entity from another individual or entity for taxation purposes. This concept is further complicated when the already attributed stock is reattributed to a third individual or entity.

Attribution is premised upon control. It is similar to the incidents of ownership doctrine found throughout the estate and gift tax code. Under this doctrine an insured party is presumed to have control over an insurance policy when he or his estate has a right to the economic benefits of the policy. But if there are no incidents of ownership under Code Section 2042, the policy will not be included in the estate of the deceased taxpayer. The Code advances the idea of control one step further because attribution is based solely on a relationship between a taxpayer and his family or some other affiliated entity. For example, the Service will assume that a taxpayer has control over stock rights much like the SEC assumes (under Rule 16(b) of the 1934 Securities Exchange Act) that all individuals who purchase and sell stock in which they have a ten percent interest do so with insider information.

Control is also used in the attribution rules in the consideration of options. The holder of an option to own stock is considered as actually owning the stock. Therefore, this stock can be attributed to other individuals or entities. One explanation of this concept is that the option to purchase the shares (which the taxpayer may obtain if the option is exercised) must be set aside until the taxpayer either exercises the option or allows the option to lapse. The concept of control will be discussed further in the waiver of attribution section.

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