(B) Deductions allowable under section 162. -- For purposes of subparagraph (A), a deduction shall not be treated as allowable under section 162 if it is specifically allowable under another section.
(C) Limitation on allowable deductions. -- For purposes of subparagraph (A), no deduction shall be taken into account with respect to compensation for personal services rendered by the 5 individual shareholders holding the largest percentage (by value) of the outstanding stock of the corporation. For purposes of the preceding sentence --
(i) individuals holding less than 5 percent (by value) of the stock of such corporation shall not be taken into account, and
(ii) stock deemed to be owned by a shareholder solely by attribution from a partner under section 544(a)(2) shall be disregarded.
(5) Dividends must equal or exceed excess of personal holding company income over 10 percent of ordinary gross income. --
(A) In general. -- The requirements of this paragraph are met if the sum of --
(i) the dividends paid during the taxable year (determined under section 562),
(ii) the dividends considered as paid on the last day of the taxable year under section 563(c) (as limited by the second sentence of section 563(b)), and
(iii) the consent dividends for the taxable year (determined under section 565),
equals or exceeds the amount, if any, by which the personal holding company income for the taxable year exceeds 10 percent of the ordinary gross income of such corporation for such taxable year.
(B) Computation of personal holding company income. -- For purposes of this paragraph, personal holding company income shall be computed --
(i) without regard to amounts described in subsection (a)(1)(C),
(ii) without regard to interest income during any taxable year --
(I) which is in the 5-taxable year period beginning with the later of the 1st taxable year of the corporation or the 1st taxable year in which the corporation conducted the trade or business described in paragraph (2)(A), and
(II) during which the corporation meets the requirements of paragraphs (2), (3), and (4), and
(iii) by including adjusted income from rents and adjusted income from mineral, oil, and gas royalties (within the meaning of paragraphs (2) and (3) of subsection (a)).
(6) Special rules for affiliated group members. --
(A) In general. -- In any case in which --
(i) the taxpayer receives royalties in connection with the licensing of computer software, and
(ii) another corporation which is a member of the same affiliated group as the taxpayer meets the requirements of paragraphs (2), (3), (4), and (5) with respect to such computer software,
the taxpayer shall be treated as having met such requirements.
(B) Affiliated group. -- For purposes of this paragraph, the term "affiliated group" has the meaning given such term by section 1504(a).
544. Rules for determining stock ownership
(a) Constructive ownership. -- For purposes of determining whether a corporation is a personal holding company, insofar as such determination is based on stock ownership under section 542(a)(2), section 543(a)(7), section 543(a)(6), or section 543(a)(4) --
(1) Stock not owned by individual. -- Stock owned, directly or inderectly, by or for a corporation, partnership, estate, or trust shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries.
(2) Family and partnership ownership. -- An individual shall be considered as owning the stock owned, directly or indirectly, by or for his family or by or for his partner. For purposes of this paragraph, the ramily of an individual includes only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants.
(3) Options. -- If any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an aption, and each one of a series of such options, shall be considered as an option to acquire such stock.
(4) Application of family-parnership and option rules. -- Paragraphs (2) and (3) shall be applied --
(A) for purposes of the stock ownership requirement provided in section 542(a)(2), if, but only if, the effect is to make the corporation a personal holding company;
(B) for purposes of section 543(a)(7) (relating to personal service contracts), of section 543(a)(6) (relating to use of property shareholders), or of section 543(a)(4) (relating to copyright royalties), if, but only if, the effect is to make the amount therein referred to includible under such paragraph as personal holding company income.
(5) Constructive ownership as actual ownership. -- Stock constructively owned by a person by reason of the application of paragraph (1) or (3) shall, for purposes of applying paragraph (1) or 92), be treated as actually owned by such person; but stock constructively owned by an individual by reason of the application of paragraph (2) shall not be treated as owned by him for purposes of again applying such paragraph in order to make another the constructive owner of such stock.
(6) Optio rule in lieu of family and partnership rule. -- If stock may be considered as owned by an individual under either paragraph (2) or (3) it shall be considered as owned by him under paragraph (3).
(b) Convertible securities. -- Outstanding securities convertible into stock (whether or not convertible during the taxable year) shall be considered as outstanding stock -- (1) for purposes of the stock ownership requirement provided in section 542(a)(2), but only if the effect of the inclusion of all such securities is to make the corporation a personal holding company;
(2) for purposes of section 543(a)(7) (relating to personal service contracts), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includible under such paragraph as personal holding company income;
(3) for purposes of section 543(a)(6) (relating to the use of property by shareholders), but only if the effect of the inclusion of all such securities is to make the amounts therein referred to includible under such paragraph as personal holding company income; and
(4) for purposes of section 543(a)(4) (relating to copyright royalties), but only if the effect of the inclusion of all such securities is to make the amount therein referred to includible under such paragraph as personal holding company income.
The requirement in paragraphs (1), (2), (3), and (4) that all convertible securities must be included if any are to be included shall be subject to the exception that, where some of the outstanding securities are convertible only after a later date than in the case of others, the class having the earlier conversion date may be included although the others are not included, but no convertible securities shall be included unless all outstanding securities having a prior conversion date are also included.
545. Undistributed personal holding company income
(a) Definition. -- For purposes of this part, the term "undistributed personal holding company income" means the taxable income of a personal holding company adjusted in the manner provided in subsections (b), (c), and (d), minus the dividends paid deduction as defined in section 561. In the case of a personal holding company which is a foreign corporation, not more than 10 percent in value of the outstanding stock of which is owned (within the meaning of section 958(a)) during the last half of the taxable year by United States persons, the term "undistributed personal holding company income" means the amount determined by multiplying the undistributed personal holding company income (determined without regard to this sentence) by the percentage in value of its outstanding stock which is the greatest percentage in value of its outstanding stock so owned by United States persons on any one day during such period.
(b) Adjustments to taxable income. -- For the purposes of subsection (a), the taxable income shall be adjusted as follows:
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