Section 6166(b)(2)(C) - Indirect ownership

§ 6166(b)(2)(C) provides:

(2) Rules for applying paragraph (1)

For purposes of paragraph (1)-

. . . . . . . .

(C) Indirect ownership

Property owned, directly or indirectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries. For purposes of the preceding sentence, a person shall be treated as a beneficiary of any trust only if such person has a present interest in the trust.

IRS Rulings
PLR 8428088 Decedent's gross estate included 18.03% of the voting stock of a corporation with more than 15 shareholders (date of death was 1982). Section 267(c)(4) family members held another 24.86% of the voting stock, owned outright by the decedent's spouse and by trusts for benefit of the decedent's children, grandson, and brother, all of whom held present interests. Section 6166(b)(2)(B) automatically attributed the spouse's interest to the decedent. Section 6166(b)(2)(C) attributed the stock owned by the trusts to the beneficiaries who held present interests. As §267(c)(4) family members, those beneficiaries' interests were automatically attributed to the decedent under §6166(b)(2)(D). However, the attribution rules of §6166(b)(2) do not apply for purposes of the 35% test of §6166(a)(1), the 20% test in §6166(b)(1)(B)(i) and §6166(b)(1)(C)(i), or the formula used in determining the maximum amount of tax that may be paid in installments in §6166(a)(2). The estate therefore had to make a §6166(b)(7) election. In addition, the decedent had made a substantial gift within 3 years of the date of death. The estate satisfied the secondary §6166(a)(2) computation test required by current law §6166(k)(5) and §2035(c)(2). See Section 6166(b)(2)(C) Computation Example 3.
PLR 9015009 In order for an estate to make an election under § 6166 of the Code, the value of the estate's interest in a closely held business must be in excess of 35 percent of the adjusted gross estate. The purpose of § 6166(b)(2)(C) of the Code, which provides that a corporation's or partnership's property shall be considered as proportionately owned by the shareholders, is only used to test whether a decedent owns 20 percent or more of a corporation or whether it has 15 or fewer shareholders, as required by § 6166(b)(1) of the Code. Thus indirect stock ownership is not used to determine if the value of the interest in a closely held business exceeds 35 percent of the adjusted gross estate under § 6166(a)(1) of the Code.
PLR 9301014 Decedent died in 1991. Her husband predeceased her. Before the husband’s death, all of the stock he owned in X corporation was transferred into a Family Trust. He and the Decedent were settlors and trustees. Upon his death the trust estate was divided into two trusts, one of which was the Survivor’s Trust for benefit of Decedent. It was funded in part with 1,468 shares of voting stock (of 14,175 shares outstanding). Decedent had a present interest in the Survivor’s Trust.
  Decedent then transferred by gift 682 shares of voting stock from the Survivor’s Trust equally to trusts for the benefit of her grandson and granddaughter. At Decedent’s death only 786 shares of voting stock remained in the Survivor’s Trust (5.54%), and 341 shares were held in the Grandson’s Trust (2.41%) and 341 shares in the Granddaughter’s Trust (2.41%). Both grandchildren had present interests in their trusts. The trusts ownership of voting stock was treated as indirectly owned by the beneficiaries under §6166(b)(2)(C), and their interests were treated as owned by Decedent under §6166(b)(2)(D) since they were §267(c)(4) family members.
  Decedent’s son and his wife owned 189 shares of voting stock as community property. The wife’s interest was automatically attributed to the son under §6166(b)(2)(B). The son’s interest (including the wife’s interest attributed to him) was treated as owned by the Decedent (1.33%) under §6166(b)(2)(D) since the son was a §267(c)(4) family member.
  Decedent’s brother owned another 1,240 shares of voting stock in a Grantor Retained Interest Trust (GRIT) (8.75%). The brother had a present interest in the trust and was treated under §6166(b)(2)(C) as owning the voting stock held in trust. Since the brother was a §267(c)(4) family member, Decedent was treated as owning the stock in the brother’s GRIT under §6166(b)(2)(D).
  With a §6166(b)(7) election the decedent was treated as owning 20.4374% in value of the voting stock (2,897 shares treated as owned by Decedent divided by 14,175 shares outstanding). However, no information is given in the PLR comparing the estate tax return values of the voting stock to the value of 100% of the voting stock (values were not given), nor was the total number of shareholders given.
PLR 9801009 Decedent's revocable grantor trust owned 10 rental properties and an office property used in the rental business, all of which were included in the gross estate as being indirectly owned pursuant to § 6166(b)(2)(C). Decedent also owned 92% of a corporation that managed the rental properties, the value of which was included in the gross estate. All of the properties owned by the trust and the 92% interest in the corporation qualified as interests in a closely held business for purposes of § 6166.
PLR 199929025 Decedent's grantor trust owned 30 rental properties and 4 parcels of land and all the stock of a Corporation which leased and managed the rental properties. All of the properties and 100% of the corporate stock were included in the Decedent's gross estate as indirectly owned pursuant to § 6166(b)(2)(C). One of the 34 properties was not being used in a trade or business. The Decedent's interest in the remaining 33 properties and the Corporation qualified under § 6166(c) to be treated as an interest in a single closely held business.
PLR 200006034 Decedent's grantor trust owned 100% of a Corporation and 100% of land and a building thereon that were used by the Corporation in its wholesale automotive supply business. The land and building were not leased to Corporation. Pursuant to § 6166(b)(2)(C) the land and building were treated as being owned by the Decedent and held for the benefit of Corporation. The individually owned land and building constituted a fundamental part of the overall operation of the wholesale automotive supply business. The Decedent had an interest in a corporation carrying on an active trade or business as a wholesale automotive supplier, and the real estate with building was an asset used by the Decedent as a sole proprietor in an active trade or business, and the combined value qualified under § 6166. See Section 6166(b)(2)(C) Computation Example 1.
PLR 200339043 Decedent's grantor trust was sole shareholder of two S corporations: Corporation 1 and Corporation 2. Decedent's gross estate included his interest in the grantor trust. Corporation 1 owned 5 commercial rental properties and Corporation 2 owned 1 commercial rental property. Both corporations were active trades or businesses for purposes of § 6166. Pursuant to the indifrect ownership rules of § 6166(b)(2)(C), the values of the 5 properties owned by Corporation 1 and the 1 property owned by Corporation 2 were included in the decedent's gross estate. However, one of the properties owned by Corporation 1 was a passive asset, and its value could not be included in the §6166(c) aggregate amount to be treated as an interest in a single closely held business. See Section 6166(b)(2)(C) Computation Example 2.
PLR 200842012 Decedent owned stock in a closely held corporation. The corporation was actively engaged in a trade or business for purposes of § 6166. Six of the other shareholders were trusts, each of which had a beneficiary with a present interest. Pursuant to § 6166(b)(2)(C), the property owned  by a trust where a beneficiary has a present interest in that trust will be considered as owned by that beneficiary. Section 6166(b)(2)(C) "applies for purposes of determining whether a partnership or corporation has 45 or fewer partners or shareholders within the meaning of section 6166(b)(1)." There were fewer than 45 shareholders at the time of the decedent's death and the decedent's interest in the corporation qualified as an interest in a closely held business.