1. (1) A taxpayer and another corporation meet the capital stock requirement if:

   1. (i) the taxpayer owns or controls, either directly or indirectly, substantially all of the capital stock of another corporation; or
   2. (ii) substantially all of the capital stock of the taxpayer is owned or controlled, either directly or indirectly, by another corporation; or
   3. (iii) substantially all of the capital stock of the taxpayer and substantially all of the capital stock of one or more other corporations are owned or controlled, either directly or indirectly, by the same interests.
2. (2) Corporations that meet the capital stock requirement are related corporations.

3. (3) The term substantially all means ownership or control of 80 percent or more of the voting power of the issued and outstanding stock. Ownership includes actual or beneficial ownership. To be considered the owner, the stockholder must have the right to vote and the right to receive dividends. The term control refers to all cases where the taxpayer controls the stock of another corporation or the stock of the taxpayer is controlled by another corporation or the taxpayer and one or more other corporations are controlled by the same interests. The determination as to whether or not a corporation is controlled by or controls another corporation or is controlled by the same interests will be determined by the facts in each case.

   Example 1:

   The taxpayer, X Corporation, owns 70 percent of the voting stock of Y Corporation. The remaining voting stock is owned by three employees of X Corporation. These employees have agreed in writing to sell their stock to X Corporation when they leave the corporation. As part of the agreement, the employees have given X Corporation their voting proxy. Thus, X Corporation owns or controls 80 percent or more of the voting stock of Y Corporation.

Tax Law, § 211(4)

(a)