26 CFR § 1.851-5 - Examples.
(a) Examples. The provisions of section 851 may be illustrated by the following examples:
Percent | |
---|---|
Cash | 5 |
Government securities | 10 |
Securities of regulated investment companies | 20 |
Securities of Corporation A | 10 |
Securities of Corporation B | 15 |
Securities of Corporation C | 20 |
Securities of various corporations (not exceeding 5 percent of its assets in any one company) | 20 |
Total | 100 |
(A) 20 percent or more of the voting stock of any other corporation;
(B) Securities issued by Corporation C; or
(C) Securities issued by any of the regulated investment companies or various corporations whose securities are owned by Investment Company W. Except for Corporation A and Corporation B, none of the corporations (including the regulated investment companies) is a member of a controlled group with Investment Company W.
(iii) Investment Company W meets the requirements under section 851(b)(3) at the end of its first quarter. It complies with subparagraph (A) of section 851(b)(3) because it has 55 percent of its assets invested as provided in that subparagraph. It complies with subparagraph (B) of section 851(b)(3) because it does not have more than 25 percent of its assets invested in the securities of any one issuer, of two or more issuers that it controls, or of one or more qualified publicly traded partnerships (as defined in section 851(h)).
Percent | |
---|---|
Cash | 10 |
Government securities | 35 |
Securities of Corporation A | 7 |
Securities of Corporation B | 12 |
Securities of Corporation C | 15 |
Securities of Corporation D | 21 |
Total | 100 |
Percent | |
---|---|
Cash and Government securities | 20 |
Securities of Corporation A | 5 |
Securities of Corporation B | 10 |
Securities of Corporation C | 25 |
Securities of various corporations (not exceeding 5 percent of its assets in any one company) | 40 |
Total | 100 |
Percent | |
---|---|
Cash and Government securities | 15 |
Securities of Corporation K (a regulated investment company) | 30 |
Securities of Corporation A | 10 |
Securities of Corporation B | 20 |
Securities of various corporations (not exceeding 5 percent of its assets in any one company) | 25 |
Total | 100 |
(iii) At the end of that quarter, Investment Company Y is disqualified under subparagraph (B)(i) of section 851(b)(3) because, after applying section 851(c)(1), more than 25 percent of the value of Investment Company Y's total assets is invested in the securities of Corporation B. This result is shown by the following calculation:
Percent | |
---|---|
Percentage of assets invested directly in Corporation B | 20.0 |
Percentage invested indirectly through K and L (30% × 20% × 40%) | 2.4 |
Percentage invested indirectly through A (10% × 30%) | 3.0 |
Total percentage of assets of Investment Company Y invested in Corporation B | 25.4 |
Percent | |
---|---|
Cash and Government securities | 40 |
Securities of Corporation A | 20 |
Securities of various qualified publicly traded partnerships (within the meaning of sections 851(b)(3) and 851(h)) | 15 |
Securities of various corporations (not exceeding 5 percent of its assets in any one company) | 25 |
Total | 100 |
(iii) Investment Company T is disqualified under subparagraph (B)(iii) of section 851(b)(3), because, after applying section 851(c)(1), more than 25 percent of the value of Investment Company T's total assets is invested in the securities of one or more qualified publicly traded partnerships. This result is shown by the following calculation:
Percent | |
---|---|
Percentage of assets invested directly in qualified publicly traded partnerships | 15.0 |
Percentage invested in qualified publicly traded partnerships indirectly through A (20% × 80%) | 16.0 |
Total percentage of assets of Investment Company T invested in qualified publicly traded partnerships | 31.0 |
(b) Effective/applicability dates. The rules of this section apply to quarters that begin on or after December 14, 2015. For purposes of applying the first sentence of section 851(d)(1) to a quarter that begins on or after March 14, 2016, the rules of this section apply in determining whether the taxpayer met the requirements of section 851(b)(3) and (c) at the close of prior quarters.