Example. Corporation X has outstanding 100 shares of voting stock, with each share entitling the holder thereof to one vote. F, a private foundation, possesses 20 shares of X voting stock representing 20 percent of the voting power in X. Assume that the permitted holdings of F in X under paragraph (b)(1) of this section are 11 percent of the voting stock in X. F, therefore, possesses voting stock in X representing a percentage of voting stock in excess of the percentage permitted by such paragraph. Such excess percentage is 9 percent of the voting stock in X, determined by subtracting the percentage of voting stock representing the permitted holdings of F in X (i.e., 11 percent) from the percentage of voting stock held by F in X (I.E., 20 percent). (20% - 11% = 9%). The excess business holdings of F in X are an amount of voting stock representing such excess percentage, or 9 shares of X voting stock (9 percent of 100).
Example. Assume that F, a private foundation, holds 10 percent of the single class of voting stock of corporation X, and owns 20 shares of nonvoting stock in X. Assume further that A and B, the only disqualified persons with respect to F, hold 10 percent of the voting stock of X. Under the provisions of paragraph (b)(1) of this section the 10 percent of X voting stock held by F will be classified as permitted holdings of F in X since 20 percent less the percentage of voting stock held by A and B in X is 10 percent. In addition, under the provisions of this (2), the 20 shares of X nonvoting stock will qualify as permitted holdings of F in X since the percentage of voting stock held by A and B in X is no greater than 20 percent.
(i) Determination of voting stock percentages | |
(a) Total number of outstanding votes in X | 100 |
(b) Total number of votes in X held by F | 30 |
(c) Total number of votes in X held by A and B | 10 |
(d) Percentage of voting stock in X held by F (item (b) divided by item (a)) (percent) | 30 |
(e) Percentage of voting stock in X held by A and B (item (c) divided by item (a)) (percent) | 10 |
(ii) Determination of permitted holdings of voting stock | |
(a) Percentage of voting stock in X held by A and B (percent) | 10 |
(b) Permitted holdings of voting stock by F in X (20 pct less item (a)) (percent) | 10 |
(iii) Determination of excess business holdings | |
(a) Percentage of voting stock in X held by F (percent) | 30 |
(b) Permitted holdings of voting stock by F in X (percent) | 10 |
(c) Item (a) less item (b) (percent) | 20 |
(d) Excess business holdings of F in X (i.e., an amount of X voting stock representing a percentage of voting stock equivalent to that in item (c)) (shares) | 20 |
26 C.F.R. §53.4943-3