Question

Coffee Corporation has 2,000 shares of common stock outstanding. John owns 700 of the shares, John’s grandfather owns 100 shares, John’s father owns 100 shares, John’s ex-wife owns 700 shares, and Redbird Partnership owns 400 shares. John is a 50% partner in Redbird Partnership. How many shares is John deemed to own in Coffee Corporation under the § 318 attribution rules?
a. 700

b. 1,000

c. 1,100

d. 1,700

e. None of the above

Answer 1

Answer:

1,000 shares

Explanation:

The 318 attribution rule states that stock owned directly or indirectly by a partnership is considered to be owned by any partner that owns 5% or more in the business.

This is relevant to family owned businesses and is a way to mark out principal owners of a business in order to avoid tax evasion and fraud.

In this scenario John directly owns 700 of the outstanding shares. But according to the 318 attribution rule, since he he is a 50% partner he owns half of the outstanding 2,000 shares. That is 1,000 shares.