Section 318 attributes stock between a partnership and its partners. Under section 318(a)(2)(A), stock owned by a partnership is considered owned proportionately by its partners. Under section 318(a)(3)(A), stock owned by a partner is considered owned in full by the partnership, without proportion.
A, an individual, has a 50 percent interest in a partnership. The partnership owns 50 of the 100 outstanding shares of a corporation, and A directly owns the other 50 shares. The partnership is considered to own 100 shares: its own 50 plus the 50 shares A owns, attributed in full to the partnership. A is considered to own 75 shares: his own 50 plus his 50 percent proportionate share of the 50 shares the partnership owns, or 25. Treas. Reg. § 1.318-2(c), Example 1.
The asymmetry is deliberate. Attribution from a partner to the partnership is complete, while attribution from the partnership to a partner is limited to the partner’s proportionate interest.
Under section 318(a)(2)(A), stock owned by a partnership is attributed to each partner in proportion to that partner’s interest in the partnership.
Under section 318(a)(3)(A), stock owned by a partner is attributed to the partnership in full, not by proportion.
A is deemed to own his 50 shares plus 25, half of the partnership’s 50. The partnership is deemed to own its 50 plus all 50 of A’s shares.
Treas. Reg. § 1.318-2(c), Example 1 illustrates entity attribution between a partnership and a partner under section 318.
