You are potentially exposed to the Section 318 attribution rules in at least three ways.
1. The Section 318 Attribution Rules Can Change Who Is Treated as “Owning” a Business
Section 318 can treat you as owning stock you never actually bought, just because of family or entity connections (spouse, children, parents, trusts, corporations, partnerships, options, etc.).
That matters because many tax rules hinge on ownership thresholds—10 percent, 50 percent, 80 percent—for things like control, related-party status, and foreign‑company reporting.
Key point. A taxpayer who thinks, “I own only 5 percent,” may in fact be treated as owning 60 percent once constructive ownership rules are applied.
2. The Section 318 Attribution Rules Can Change How Transactions Are Taxed (Capital Gain vs. Dividend vs. Disallowed Loss)
Section 318 often decides whether a transaction is treated as a capital gain sale, a dividend, or a disallowed/deferred loss, especially in stock redemptions and some related‑party sale regimes.
If constructive ownership makes you “related” to the buyer or to the corporation, what looked like a clean capital gain or deductible loss can suddenly become ... Log in to view full article.
