What is a 5-percent shareholder?

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A 5-percent shareholder generally means any person who owns 5 percent or more (by fair market value) of the stock of the loss corporation.

Under Treas. Reg. § 1.382-2T(g)(1), the term “5-percent shareholder” includes  (i) an individual who owns either a direct ownership interest in the stock of the loss corporation of 5 percent or more, or an indirect interest (determined based on the constructive ownership rules in section 318, as modified under section 382(l)(3)(A)) in the stock of the loss corporation of 5 percent or more by virtue of an ownership interest in any one first-tier entity or higher-tier entity (discussed below); and (ii) a public group determined under the aggregation rules or the segregation rules provided in Treas. Reg. § 1.382-2T(j)(1), (2), or (3).  

In addition, a group of persons who have a formal or informal understanding among themselves to make a coordinated acquisition of 5 percent or more of the stock of the loss corporation (the “Coordinated Acquisition Group”) are treated as an entity, the owners of which can also be collectively treated as a 5-percent shareholder