USC Subpart B

in effect

26 U.S.C. § 1293 Current taxation of income from qualified electing funds

(a) Inclusion(1) In generalEvery United States person who owns (or is treated under section 1298(a) as owning) stock of a qualified electing fund at any time during the taxable year of such fund shall include in gross income—(A) as ordinary income, such shareholder’s pro rata share of the ordinary earnings of such fund for such year, and (B) as long-term capital gain, such shareholder’s pro rata share of the net capital gain of such fund for such year. (2) Year of inclusionThe inclusion under paragraph (1) shall be for the taxable year of the shareholder in which or with which the taxable year of the fund ends. (b) Pro rata shareThe pro rata share referred to in subsection (a) in the case of any shareholder is the amount which would have been distributed with respect to the shareholder’s stock if, on each day during the taxable year of the fund, the fund had distributed to each shareholder a pro rata share of that day’s ratable share of the fund’s ordinary earnings and net capital gain for such year. To the extent provided in regulations, if the fund establishes to the satisfaction of the Secretary that it uses a shorter period than the taxable year to determine shareholders’ interests in the earnings of such fund, pro rata shares may be determined by using such shorter period. (c) Previously taxed amounts distributed tax freeIf the taxpayer establishes to the satisfaction of the Secretary that any amount distributed by a passive foreign investment company is paid out of earnings and profits of the company which were included under subsection (a) in the income of any United States person, such amount shall be treated, for purposes of this chapter, as a distribution which is not a dividend; except that such distribution shall immediately reduce earnings and profits. If the passive foreign investment company is a controlled foreign corporation (as defined in section 957(a)), the preceding sentence shall not apply to any United States shareholder (as defined in section 951(b)) in such corporation, and, in applying section 959 to any such shareholder, any inclusion under this section shall be treated as an inclusion under section 951(a)(1)(A). (d) Basis adjustmentsThe basis of the taxpayer’s stock in a passive foreign investment company shall be—(1) increased by any amount which is included in the income of the taxpayer under subsection (a) with respect to such stock, and (2) decreased by any amount distributed with respect to such stock which is not includible in the income of the taxpayer by reason of subsection (c). A similar rule shall apply also in the case of any property if by reason of holding such property the taxpayer is treated under section 1298(a) as owning stock in a qualified electing fund. (e) Ordinary earningsFor purposes of this section—(1) Ordinary earningsThe term “ordinary earnings” means the excess of the earnings and profits of the qualified electing fund for the taxable year over its net capital gain for such taxable year. (2) Limitation on net capital gainA qualified electing fund’s net capital gain for any taxable year shall not exceed its earnings and profits for such taxable year. (3) Determination of earnings and profitsThe earnings and profits of any qualified electing fund shall be determined without regard to paragraphs (4), (5), and (6) of section 312(n). Under regulations, the preceding sentence shall not apply to the extent it would increase earnings and profits by an amount which was previously distributed by the qualified electing fund. (f) Foreign tax credit allowed in the case of 10-percent corporate shareholderFor purposes of section 960—(1) any amount included in the gross income under subsection (a) shall be treated as if it were included under section 951(a), (2) any amount excluded from gross income under subsection (c) shall be treated in the same manner as amounts excluded from gross income under section 959, and (3) a domestic corporation which owns (or is treated under section 1298(a) as owning) stock of a qualified electing fund shall be treated in the same manner as a United States shareholder of a controlled foreign corporation (and such qualified electing fund shall be treated in the same manner as such controlled foreign corporation) if such domestic corporation meets the stock ownership requirements of subsection (a) or (b) of section 902 (as in effect before its repeal) with respect to such qualified electing fund. (g) Other special rules(1) Exception for certain incomeFor purposes of determining the amount included in the gross income of any person under this section, the ordinary earnings and net capital gain of a qualified electing fund shall not include any item of income received by such fund if—(A) such fund is a controlled foreign corporation (as defined in section 957(a)) and such person is a United States shareholder (as defined in section 951(b)) in such fund, and (B) such person establishes to the satisfaction of the Secretary that—(i) such income was subject to an effective rate of income tax imposed by a foreign country greater than 90 percent of the maximum rate of tax specified in section 11, or (ii) such income is—(I) from sources within the United States, (II) effectively connected with the conduct by the qualified electing fund of a trade or business in the United States, and (III) not exempt from taxation (or subject to a reduced rate of tax) pursuant to a treaty obligation of the United States. (2) Prevention of double inclusionThe Secretary shall prescribe such adjustment to the provisions of this section as may be necessary to prevent the same item of income of a qualified electing fund from being included in the gross income of a United States person more than once.

26 U.S.C. § 1294 Election to extend time for payment of tax on undistributed earnings

(a) Extension allowed by election(1) In generalAt the election of the taxpayer, the time for payment of any undistributed PFIC earnings tax liability of the taxpayer for the taxable year shall be extended to the extent and subject to the limitations provided in this section. (2) Election not permitted where amounts otherwise includible under section 951The taxpayer may not make an election under paragraph (1) with respect to the undistributed PFIC earnings tax liability attributable to a qualified electing fund for the taxable year if any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year. (b) DefinitionsFor purposes of this section—(1) Undistributed PFIC earnings tax liabilityThe term “undistributed PFIC earnings tax liability” means, in the case of any taxpayer, the excess of—(A) the tax imposed by this chapter for the taxable year, over (B) the tax which would be imposed by this chapter for such year without regard to the inclusion in gross income under section 1293 of the undistributed earnings of a qualified electing fund. (2) Undistributed earningsThe term “undistributed earnings” means, with respect to any qualified electing fund, the excess (if any) of—(A) the amount includible in gross income by reason of section 1293(a) for the taxable year, over (B) the amount not includible in gross income by reason of section 1293(c) for such taxable year. (c) Termination of extension(1) Distributions(A) In generalIf a distribution is not includible in gross income for the taxable year by reason of section 1293(c), then the extension under subsection (a) for payment of the undistributed PFIC earnings tax liability with respect to the earnings to which such distribution is attributable shall expire on the last date prescribed by law (determined without regard to extensions) for filing the return of tax for such taxable year. (B) Ordering ruleFor purposes of subparagraph (A), a distribution shall be treated as made from the most recently accumulated earnings and profits. (2) Transfers, etc.If—(A) stock in a passive foreign investment company is transferred during the taxable year, or (B) a passive foreign investment company ceases to be a qualified electing fund, all extensions under subsection (a) for payment of undistributed PFIC earnings tax liability attributable to such stock (or, in the case of such a cessation, attributable to any stock in such company) which had not expired before the date of such transfer or cessation shall expire on the last date prescribed by law (determined without regard to extensions) for filing the return of tax for the taxable year in which such transfer or cessation occurs. To the extent provided in regulations, the preceding sentence shall not apply in the case of a transfer in a transaction with respect to which gain or loss is not recognized (in whole or in part), and the transferee in such transaction shall succeed to the treatment under this section of the transferor. (3) JeopardyIf the Secretary believes that collection of an amount to which an extension under this section relates is in jeopardy, the Secretary shall immediately terminate such extension with respect to such amount, and notice and demand shall be made by him for payment of such amount. (d) ElectionThe election under subsection (a) shall be made not later than the time prescribed by law (including extensions) for filing the return of tax imposed by this chapter for the taxable year. (e) Authority to require bondSection 6165 shall apply to any extension under this section as though the Secretary were extending the time for payment of the tax. (f) Treatment of loans to shareholderFor purposes of this section and section 1293, any loan by a qualified electing fund (directly or indirectly) to a shareholder of such fund shall be treated as a distribution to such shareholder. (g) Cross referenceFor provisions providing for interest for the period of the extension under this section, see section 6601.

26 U.S.C. § 1295 Qualified electing fund

(a) General ruleFor purposes of this part, any passive foreign investment company shall be treated as a qualified electing fund with respect to the taxpayer if—(1) an election by the taxpayer under subsection (b) applies to such company for the taxable year, and (2) such company complies with such requirements as the Secretary may prescribe for purposes of—(A) determining the ordinary earnings and net capital gain of such company, and (B) otherwise carrying out the purposes of this subpart. (b) Election(1) In generalA taxpayer may make an election under this subsection with respect to any passive foreign investment company for any taxable year of the taxpayer. Such an election, once made with respect to any company, shall apply to all subsequent taxable years of the taxpayer with respect to such company unless revoked by the taxpayer with the consent of the Secretary. (2) When madeAn election under this subsection may be made for any taxable year at any time on or before the due date (determined with regard to extensions) for filing the return of the tax imposed by this chapter for such taxable year. To the extent provided in regulations, such an election may be made later than as required in the preceding sentence where the taxpayer fails to make a timely election because the taxpayer reasonably believed that the company was not a passive foreign investment company.