Rev. Rul. 55-104

Advice has been requested relative to the extent to which the direct and indirect ownership rule contained in section 421(d)(1)(C) of the Internal Revenue Code of 1954 applies under the conditions stated below.

The taxpayer has been granted a stock option by his corporate employer. In addition to stock of the company which is owned directly by the taxpayer, his father, mother, brothers and sisters, certain shares are held by various trusts of which he or they are the beneficiaries. Also the taxpayer, his father and mother and some of the trusts own shares of stock in a foreign corporation which in turn owns certain shares of stock in the corporation granting the option.

Section 421(d)(1)(C) of the Code provides, in part, as follows:

For the purposes of this subparagraph-

(i) such individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and

(ii) stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries; and * * *

Accordingly, it is held that for the purpose of applying the stock ownership provisions of section 421(d)(1)(C) of the Internal Revenue Code of 1954, an employee of a corporation granting a stock option is considered to be the owner of all shares of stock owned directly or indirectly by him, his wife, father, mother, brothers and sisters and all shares of stock held by trusts of which he or they are the beneficiaries. Further, he is considered to own, proportionately, any shares of stock in the corporation granting the option which are owned by another corporation of which he or any of the above-designated persons or trusts are shareholders