Are partners deemed to own each others holdings by attribution under section 318 of the Internal Revenue Code?
No. Section 318 of the Internal Revenue Code (“IRC”) establishes the attribution rules for constructive ownership of stock for federal income tax purposes. IRC sections 318(2) and 318(3) address the attribution rules for partners and partnerships. Under IRC 318(2), stock owned, directly or indirectly, by or for a partnership is considered as owned proportionately by its partners. Conversely, under IRC 318(3), stock owned, directly or indirectly, by or for a partner is considered as owned by the partnership. However, under IRC 318(5)(c), a partnership that constructively owns a partner’s stock by application of the attribution rules as stated in IRC 318(3) cannot use the attribution provisions of IRC 318(2) to make another partner the constructive owner of such stock. For example, if partner A owns 100% of the stock in corporation C, and partner B owns 100% of the stock in corporation D, the partners are not deemed to own each other’s stock merely because partnership AB is considered a
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