§ 1297. Passive foreign investment company

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 title XII § 1235(a) · 100 Stat. 2085

   Enacted · 26 U.S.C. § 1297

   Added Pub. L. 99–514, title XII, § 1235(a), Oct. 22, 1986, 100 Stat. 2572, § 1296

   Source evidence

   Code source credit
   Added Pub. L. 99–514, title XII, § 1235(a), Oct. 22, 1986, 100 Stat. 2572, § 1296

   Enacted provision · exact public law section
   (a) General Rule.— Subchapter P of chapter 1 is amended by adding at the end thereof the following new part: “PART VI— TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES “Subpart A. Interest on tax deferral. “Subpart B. Treatment of qualified electing funds. “Subpart C. General provisions. “Subpart A— Interest on Tax Deferral “1291. Interest on tax deferral. “SEC. 1291. INTEREST ON TAX DEFERRAL. “(a) Treatment of Distributions and Stock Dispositions.— “(1) Distributions.— If a United States person receives an excess distribution in respect of stock in a passive foreign investment company, then— “(A) the amount of the excess distribution shall be allocated ratably to each day in the taxpayer’s holding period for the stock, “(B) with respect to such excess distribution, the taxpayer’s gross income for the current year shall include (as ordinary income) only the amounts allocated under subparagraph (A) to— “(i) the current year, or “(ii) any period in the taxpayer’s holding period before the 1st day of the 1st taxable year of the com-pany for which it was a passive foreign investment company (or, if later, January 1, 1987), and “(C) the tax imposed by this chapter for the current year shall be increased by the deferred tax amount (determined under subsection (c)). “(2) Dispositions.— If the taxpayer disposes of stock in a passive foreign investment company, then the rules of paragraph (1) shall apply to any gain recognized on such disposition in the same manner as if such gain were an excess distribution. “(3) Definitions.— For purposes of this section— “(A) Holding period.— The taxpayer’s holding period shall be determined under section 1223; except that, in the case of an excess distribution, such holding period shall be treated as ending on the date of such distribution. “(B) Current year.— The term ‘current year’ means the taxable year in which the excess distribution or disposition occurs. “(4) Coordination with section 904.— Subparagraph (B) of paragraph (1) shall not apply for purposes of section 904. “(5) Section 902 not to apply.— Section 902 shall not apply to any dividend paid by a passive foreign investment company unless such company is a qualified electing fund. “(b) Excess Distribution.— “(1) In general.— For purposes of this section, the term ‘excess distribution’ means any distribution in respect of stock received during any taxable year to the extent such distribution does not exceed its ratable portion of the total excess distribution (if any) for such taxable year. “(2) Total excess distribution.— For purposes of this subsection— “(A) In general.— The term ‘total excess distribution’ means the excess (if any) of— “(i) the amount of the distributions in respect of the stock received by the taxpayer during the taxable year, over “(ii) 125 percent of the average amount received in respect of such stock by the taxpayer during the 3 preceding taxable years (or, if shorter, the portion of the taxpayer’s holding period before the taxable year). “(B) No excess for 1st year.— The total excess distributions with respect to any stock shall be zero for the taxable year in which the taxpayer’s holding period in such stock begins. “(3) Adjustments.— Under regulations prescribed by the Secretary— “(A) determinations under this subsection shall be made on a share-by-share basis, except that shares with the same holding period may be aggregated, “(B) proper adjustments shall be made for stock splits and stock dividends, “(C) if the taxpayer does not hold the stock during the entire taxable year, distributions received during such year shall be annualized, “(D) if the taxpayer’s holding period includes periods during which the stock was held by another person, distributions received by such other person shall be taken into account as if received by the taxpayer, and “(E) if the distributions are received in a foreign currency, determinations under this subsection shall be made in such currency and the amount of any excess distribution determined in such currency shall be translated into dollars. “(c) Deferred Tax Amount.— For purposes of this section— “(2) In general.— The term ‘deferred tax amount’ means, with respect to any distribution or disposition to which subsection (a) applies, an amount equal to the sum of— “(A) the aggregate increases in taxes described in paragraph (2), plus “(B) the aggregate amount of interest (determined in the manner provided under paragraph (3)) on such increases in tax. “(2) Aggregate increases in taxes.— For purposes of paragraph (1)(A), the aggregate increases in taxes shall be determined by multiplying each amount allocated under subsection (a)(1)(A) to any taxable year (other than any taxable year referred to in subsection (a)(1)(B)) by the highest rate of tax in effect for such taxable year under section 1 or 11, whichever applies. “(3) Computation of interest.— “(A) In general.— The amount of interest referred to in paragraph (1)(B) on any increase determined under paragraph (2) for any taxable year shall be determined for the period— “(i) beginning on the due date for such taxable year, and “(ii) ending on the due date for the taxable year with or within which the distribution or disposition occurs, by using the rates and method applicable under section 6621 for underpayments of tax for such period. “(B) Due date.— For purposes of this subsection, the term ‘due date’ means the date prescribed by law (determined without regard to extensions) for filing the return of the tax imposed by this chapter for the taxable year. “(d) Coordination With Subpart B.— “(1) In general.— This section shall not apply with respect “(A) any distribution paid by a passive foreign investment company during a taxable year for which such company is a qualified electing fund, and “(B) any disposition of stock in a passive foreign investment company if such company is a qualified electing fund for each of its taxable years— “(i) which begins after December 31, 1986, and for which such company is a passive foreign investment company, and “(ii) which includes any portion of the taxpayer’s holding period. “(2) Election to recognize gain where company becomes qualified electing fund.— “(A) In general.— If— “(i) a passive foreign investment company becomes a qualified electing fund for a taxable year which begins after December 31, 1986, “(ii) the taxpayer holds stock in such company on the first day of such taxable year, and “(iii) the taxpayer establishes to the satisfaction of the Secretary the fair market value of such stock on such first day, the taxpayer may elect to recognize gain as if he sold such stock on such first day for such fair market value. “(B) Adjustments.— In the case of any stock to which subparagraph (A) applies— “(i) the adjusted basis of such stock shall be increased by the gain recognized under subparagraph (A), and “(ii) the taxpayer’s holding period in such stock shall be treated as beginning on the first day referred to in subparagraph (A). “(e) Certain Basis, Etc., Rules Made Applicable.— Rules similar to the rules of subsections (c), (d), (e), and (f) of section 1246 shall apply for purposes of this section; except that— “(1) the reduction under subsection (e) of such section shall be the excess of the basis determined under section 1014 over the adjusted basis of the stock immediately before the decedent’s death, and “(2) such a reduction shall not apply in the case of a decedent who was not a nonresident alien at all times during his holding period in the stock. “(f) Nonrecognition Provisions.— To the extent provided in regulations, gain shall be recognized on any disposition of stock in a passive foreign investment company. “Subpart B— Treatment of Qualified Electing Funds “Sec. 1293. Current taxation of income from qualified electing funds. “Sec. 1294. Election to extend time for payment of tax on undistributed earnings. “Sec. 1295. Qualified electing fund. “SEC. 1293. CURRENT TAXATION OF INCOME FROM QUALIFIED ELECTING FINDS. “(a) Inclusion.— “(1) In general.— Every United States person who owns (or is treated under section 1297(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 inclusion.— The 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 Share.— The 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. “(c) Previously Taxed Amounts Distributed Tax Free.— If 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 as a distribution which is not a dividend. “(d) Basis Adjustments.— The 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 1297(a) as owning stock in a qualified electing fund. “(e) Ordinary Earnings.— For purposes of this section— “(1) Ordinary earnings.— The 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 gain.— A qualified electing fund’s net capital gain for any taxable year shall not exceed its earnings and profits for such taxable year. “(f) Foreign Tax Credit Allowed In the Case of 10-Percent Corporate Shareholder.— For 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), and “(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. “SEC. 1294. ELECTION TO EXTEND TIME FOR PAYMENT OF TAX ON UNDISTRIBUTED EARNINGS. “(a) Extension Allowed by Election.— “(1) In general.— At 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 551 or 951.— The 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— “(A) any amount is includible in the gross income of the taxpayer under section 551 with respect to such fund for such taxable year, or “(B) any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year. “(b) Definitions.— For purposes of this section— “(1) Undistributed pfic earnings tax liability.— The 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 earnings.— The 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 general.— If 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 rule.— For purposes of subparagraph (A), a distribution shall be treated as made from the most recently accumulated earnings and profits. “(2) Dispositions, etc.— If— “(A) stock in a passive foreign investment company is disposed of 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 disposition 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 disposition or cessation occurs. “(3) Jeopardy.— If 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) Election.— The 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 Bond.— Section 6165 shall apply to any extension under this section as though the Secretary were extending the time for payment of the tax. “SEC. 1295. QUALIFIED ELECTING FUND. “(a) General Rule.— For purposes of this part, the term ‘qualified electing fund’ means any passive foreign investment company if— “(1) an election under subsection (b) applies to such company for the taxable year, and “(2) such company complies for such taxable year with such requirements as the Secretary may prescribe for purposes of— “(A) determining the ordinary earnings and net capital gain of such company for the taxable year, “(B) ascertaining the ownership of its outstanding stock, and “(C) otherwise carrying out the purposes of this subpart. “(b) Election.— “(1) In General.— A passive foreign investment company may make an election under this subsection for any taxable year. Such an election, once made, shall apply to all subsequent taxable years of such company for which such company is a passive foreign investment company unless revoked with the consent of the Secretary. “(2) When made.— An election under this subsection may be made for any taxable year at any time before the 15th day of the 3rd month of the following taxable year. Subpart C— General Provisions “Sec. 1296. Passive foreign investment company. “Sec. 1297. Special rules. “SEC. 1296. PASSIVE FOREIGN INVESTMENT COMPANY. “(a) In General.— For purposes of this part, except as otherwise provided in this subpart the term ‘passive foreign investment company’ means any foreign corporation if— “(1) 75 percent or more of the gross income of such corporation for the taxable year is passive income, or “(2) the average percentage of assets (by value) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent. “(b) Passive Income.— For purposes of this section— “(1) In general.— Except as provided in paragraph (2), the term ‘passive income’ has the meaning given such term by section 904(d)(2)(A) without regard to the exceptions contained in clause (iii) thereof. “(2) Exception for certain banks and insurance companies.— Except as provided in regulations, the term ‘passive income’ does not include any income— “(A) derived in the active conduct of a banking business by an institution licensed to do business as a bank in the United States (or, to the extent provided in regulations, by any other corporation), or “(B) derived in the active conduct of an insurance business by a corporation which would be subject to tax under subchapter L if it were a domestic corporation. “(c) Look-Thru in the Case of 25-Percent Owned Corporations.— If a foreign corporation owns at least 25 percent (by value) of the stock of another corporation, for purposes of determining whether such foreign corporation is a passive foreign investment company, such foreign corporation shall be treated as if it— “(1) held its proportionate share of the assets of such other corporation, and “(2) received directly its proportionate share of the income of such other corporation. “(d) Section 1247 Corporations.— For purposes of this part, the term ‘passive foreign investment company’ does not include any foreign investment company to which section 1247 applies. “SEC. 1297. SPECIAL RULES. “(a) Attribution of Ownership.— For purposes of this part— “(1) Attribution to united states persons.— This subsection— “(A) shall apply to the extent that the effect is to treat stock of a passive foreign investment company as owned by a United States person, and “(B) except to the extent provided in regulations, shall not apply to treat stock owned (or treated as owned under this subsection) by a United States person as owned by any other person. “(2) Corporations.— “(A) In general.— If 50 percent or more in value of the stock of a corporation is owned, directly or indirectly, by or for any person, such person shall be considered as owning the stock owned directly or indirectly by or for such corporation in that proportion which the value of the stock which such person so owns bears to the value of all stock in the corporation. “(B) 50-percent limitation not to apply to pfic.— For purposes of determining whether a shareholder of a passive foreign investment company is treated as owning stock owned directly or indirectly by or for such company, subparagraph (A) shall be applied without regard to the 50-percent limitation contained therein. “(3) Partnerships, etc.— Stock owned, directly or indirectly, by or for a partnership, estate, or trust shall be considered as being owned proportionately by its partners or beneficiaries. “(4) Successive application.— Stock considered to be owned by a person by reason of the application of paragraph (2) or (3) shall, for purposes of applying such paragraphs, be considered as actually owned by such person. “(b) Other Special Rules.— For purposes of this part— “(1) Time for determination.— Stock held by a taxpayer shall be treated as stock in a passive foreign investment company if, at any time during the holding period of the taxpayer with respect to such stock, such corporation (or any predecessor) was a passive foreign investment corporation which was not a qualified electing fund. The preceding sentence shall not apply if the taxpayer elects to recognize gain (as of the last day of the last taxable year for which the company was a passive foreign investment company) under rules similar to the rules of section 1291(d)(2). “(2) Certain corporations not treated as pfic’s during start-up year.— A corporation shall not be treated as a passive foreign investment company for the first taxable year such corporation has gross income (hereinafter in this paragraph referred to as the ‘start-up year’) if— “(A) no predecessor of such corporation was a passive foreign investment company, “(B) it is established to the satisfaction of the Secretary that such corporation will not be a passive foreign invest-ment company for either of the 1st 2 taxable years following the start-up year, and “(C) such corporation is not a passive foreign investment company for either of the 1st 2 taxable years following the start-up year. “(3) Certain corporations changing businesses.— A corporation shall not be treated as a passive foreign investment company for any taxable year if— “(A) such corporation (and any predecessor) was not a passive foreign investment corporation for any prior taxable year, “(B) it is established to the satisfaction of the Secretary that— “(i) substantially all of the passive income of the corporation for the taxable year is attributable to proceeds from the disposition of 1 or more active trades or businesses, and “(ii) such corporation will not be a passive foreign investment company for either of the 1st 2 taxable years following such taxable year, and “(C) such corporation is not a passive foreign investment company for either of such 2 taxable years. “(4) Separate interests treated as separate corporations.— Under regulations prescribed by the Secretary, where necessary to carry out the purposes of this part, separate classes of stock (or other interests) in a corporation shall be treated as interests in separate corporations. “(5) Application of section where stock held by other entity.— Under regulations, in any case in which a United States person is treated as holding stock in a passive foreign investment company by reason of subsection (a), any disposition by the United States person or the person holding such stock which results in the United States person being treated as no longer holding such stock, shall be treated as a disposition by the United States person with respect to stock in the passive foreign investment company. “(6) Dispositions.— If a taxpayer uses any stock in a passive foreign investment company as security for a loan, the taxpayer shall be treated as having disposed of such stock. “(7) Coordination with section 1246.— Section 1246 shall not apply to earnings and profits of any company for any taxable year beginning after December 31, 1986, if such company is a passive foreign investment company for such taxable year, “(c) Regulations.— The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part.”

2. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1018(u)(40) · 102 Stat. 3342

   Inserted · 26 U.S.C. § 1297(a)

   Pub. L. 100–647, § 1018(u)(40), inserted a comma after “subpart”

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 100–647, § 1018(u)(40), inserted a comma after “subpart”.

   Enacted provision · exact public law section
   (40) Subsection (a) of section 1296 of the 1986 Code is amended by inserting a comma after “this subpart”.

3. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1012(p)(27) · 102 Stat. 3342

   Inserted · 26 U.S.C. § 1297(a)

   Pub. L. 100–647, § 1012(p)(27), inserted at end “A foreign corporation may elect to have the determination under paragraph (2) based on the adjusted bases of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

   Target inherited from the preceding amendment note.

   Source evidence

   Code amendment note
   Pub. L. 100–647, § 1012(p)(27), inserted at end “A foreign corporation may elect to have the determination under paragraph (2) based on the adjusted bases of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

   Enacted provision · exact public law section
   (27) Subsection (a) of section 1296 of the 1986 Code is amended by adding at the end thereof the following new sentences: “A foreign corporation may elect to have the determination under paragraph (2) based on the adjusted bases of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

4. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1012(p)(5) · 102 Stat. 3342

   Amended · 26 U.S.C. § 1297(b)(1)

   Pub. L. 100–647, § 1012(p)(5), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Except as provided in paragraph (2), the term ‘passive income’ has the meaning given such term by section 904(d)(2)(A) without regard to the exceptions contained in clause (iii) thereof.”

   Source evidence

   Code amendment note
   Subsec. (b)(1). Pub. L. 100–647, § 1012(p)(5), amended par. (1) generally. Prior to amendment, par. (1) read as follows: “Except as provided in paragraph (2), the term ‘passive income’ has the meaning given such term by section 904(d)(2)(A) without regard to the exceptions contained in clause (iii) thereof.”

   Enacted provision · exact public law section
   (5) Paragraph (1) of section 1296(b) of the 1986 Code is amended to read as follows: “(1) In general.— Except as provided in paragraph (2), the term ‘passive income’ means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c).”

5. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1012(p)(26) · 102 Stat. 3342

   1. Substituted · 26 U.S.C. § 1297(b)(2)

      Pub. L. 100–647, § 1012(p)(26), substituted “Exceptions” for “Exception for certain banks and insurance companies” in heading

   2. Inserted · 26 U.S.C. § 1297(b)(2)

      Pub. L. 100–647, § 1012(p)(26), inserted sentence at end defining “related person”

   Source evidence

   Code amendment note
   Subsec. (b)(2). Pub. L. 100–647, § 1012(p)(26), substituted “Exceptions” for “Exception for certain banks and insurance companies” in heading, and inserted sentence at end defining “related person”.

   Enacted provision · exact public law section
   (26) (A) Paragraph (2) of section 1296(b) of the 1986 Code is amended by striking out “or” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, or”, and by adding at the end thereof the following: “(C) which is interest, a dividend, or a rent or royalty, which is received or accrued from a related person (within the meaning of section 954(d)(3)) to the extent such amount is properly allocable (under regulations prescribed by the Secretary) to income of such related person which is not passive income. For purposes of subparagraph (C), the term ‘related person’ has the meaning given such term by section 954(d)(3) determined by substituting ‘foreign corporation’ for ‘controlled foreign corporation’ each place it appears in section 954(d)(3).” (B) The paragraph heading for paragraph (2) of section 1296(b) of the 1986 Code is amended by striking out “Exception for certain banks and insurance companies” and inserting in lieu thereof “Exceptions”.

6. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1012(p)(16) · 102 Stat. 3342

   Inserted · 26 U.S.C. § 1297(b)(2)(B)

   Pub. L. 100–647, § 1012(p)(16), inserted “is predominantly engaged in an insurance business and which” after “a corporation which”

   Source evidence

   Code amendment note
   Subsec. (b)(2)(B). Pub. L. 100–647, § 1012(p)(16), inserted “is predominantly engaged in an insurance business and which” after “a corporation which”.

   Enacted provision · exact public law section
   (16) Subparagraph (B) of section 1296(b)(2) of the 1986 Code is amended by striking out “by a corporation which” and inserting in lieu thereof “by a corporation which is predominantly engaged in an insurance business and which”.

7. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1012(p)(26)(A) · 102 Stat. 3342

   Added · 26 U.S.C. § 1297(b)(2)(C)

   Pub. L. 100–647, § 1012(p)(26)(A), added subpar. (C)

   Source evidence

   Code amendment note
   Subsec. (b)(2)(C). Pub. L. 100–647, § 1012(p)(26)(A), added subpar. (C).

   Enacted provision · exact public law section
   (A) Paragraph (2) of section 1296(b) of the 1986 Code is amended by striking out “or” at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof “, or”, and by adding at the end thereof the following: “(C) which is interest, a dividend, or a rent or royalty, which is received or accrued from a related person (within the meaning of section 954(d)(3)) to the extent such amount is properly allocable (under regulations prescribed by the Secretary) to income of such related person which is not passive income. For purposes of subparagraph (C), the term ‘related person’ has the meaning given such term by section 954(d)(3) determined by substituting ‘foreign corporation’ for ‘controlled foreign corporation’ each place it appears in section 954(d)(3).”

8. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 § 1012(p)(2) · 102 Stat. 3342

   Inserted · 26 U.S.C. § 1297(c)

   Pub. L. 100–647, § 1012(p)(2), inserted “(directly or indirectly)” after “foreign corporation owns”

   Source evidence

   Code amendment note
   Subsec. (c). Pub. L. 100–647, § 1012(p)(2), inserted “(directly or indirectly)” after “foreign corporation owns”.

   Enacted provision · exact public law section
   (2) Subsection (c) of section 1296 of the 1986 Code is amended by striking out “owns at least” and inserting in lieu thereof “owns (directly or indirectly) at least”.

9. 1993

   Revenue Reconciliation Act of 1993

   Pub. L. 103–66 § 13231(d)(1) · 107 Stat. 312

   Substituted · 26 U.S.C. § 1297(a)

   Pub. L. 103–66, § 13231(d)(1), substituted in closing provisions “In the case of a controlled foreign corporation (or any other foreign corporation if such corporation so elects), the determination under paragraph (2) shall be based on the adjusted bases (as determined for purposes of computing earnings and profits) of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.” for “A foreign corporation may elect to have the determination under paragraph (2) based on the adjusted bases of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

   Source evidence

   Code amendment note
   Subsec. (a). Pub. L. 103–66, § 13231(d)(1), substituted in closing provisions “In the case of a controlled foreign corporation (or any other foreign corporation if such corporation so elects), the determination under paragraph (2) shall be based on the adjusted bases (as determined for purposes of computing earnings and profits) of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.” for “A foreign corporation may elect to have the determination under paragraph (2) based on the adjusted bases of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

   Enacted provision · exact public law section
   (1) Adjusted basis used in certain determinations.— Subsection (a) of section 1296 is amended by striking the material following paragraph (2) and inserting the following: “In the case of a controlled foreign corporation (or any other foreign corporation if such corporation so elects), the determination under paragraph (2) shall be based on the adjusted bases (as determined for purposes of computing earnings and profits) of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

10. 1993

    Revenue Reconciliation Act of 1993

    Pub. L. 103–66 § 13231(d)(3) · 107 Stat. 312

    Added · 26 U.S.C. § 1297(b)(3)

    Pub. L. 103–66, § 13231(d)(3), added par. (3)

    Source evidence

    Code amendment note
    Subsec. (b)(3). Pub. L. 103–66, § 13231(d)(3), added par. (3).

    Enacted provision · exact public law section
    (3) Treatment of certain dealers in securities.— Subsection (b) of section 1296 is amended by adding at the end thereof the following new paragraph: “(3) Treatment of certain dealers in securities.— “(A) In general.— In the case of any foreign corporation which is a controlled foreign corporation (as defined in section 957(a)), the term ‘passive income’ does not include any income derived in the active conduct of a securities business by such corporation if such corporation is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934 or is registered as a Government securities broker or dealer under section 15C(a) of such Act. To the extent provided in regulations, such term shall not include any income derived in the active conduct of a securities business by a controlled foreign corporation which is not so registered. “(B) Application of look-thru rules.— For purposes of paragraph (2)(C), rules similar to the rules of subparagraph (A) of this paragraph shall apply in determining whether any income of a related person (whether or not a corporation) is passive income. “(C) Limitation.— The preceding provisions of this paragraph shall only apply in the case of persons who are United States shareholders (as defined in section 951(b)) in the controlled foreign corporation.”

11. 1996

    Small Business Job Protection Act of 1996

    Pub. L. 104–188 title I § 1704(r)(1) · 110 Stat. 1755

    Added · 26 U.S.C. § 1297(b)(2)(D)

    Pub. L. 104–188 added subpar. (D)

    Source evidence

    Code amendment note
    Subsec. (b)(2)(D). Pub. L. 104–188 added subpar. (D).

    Enacted provision · exact public law section
    (1) In general.— Paragraph (2) of section 1296(b) is amended by striking “or” at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting “, or”, and by inserting after subparagraph (C) the following new subparagraph: “(D) which is foreign trade income of an FSC or export trade income of an export trade corporation (as defined in section 971).”.

12. 1997

    Pub. L. 105–34 § 1122(a) · 111 Stat. 788

    Changed · 26 U.S.C. § 1297

    Pub. L. 105–34, § 1122(a), renumbered section 1296 of this title as this section

    Source evidence

    Code amendment note
    Pub. L. 105–34, § 1122(a), renumbered section 1296 of this title as this section.

    Enacted provision · exact public law section
    (a) In General.— Part VI of subchapter P of chapter 1 is amended by redesignating subpart C as subpart D, by redesignating sections 1296 and 1297 as sections 1297 and 1298, respectively, and by inserting after subpart B the following new subpart: “Subpart C— Election of Mark to Market For Marketable Stock “Sec. 1296. Election of mark to market for marketable stock. “SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK. “(a) General Rule.— In the case of marketable stock in a passive foreign investment company which is owned (or treated under subsection (g) as owned) by a United States person at the close of any taxable year of such person, at the election of such person— “(1) If the fair market value of such stock as of the close of such taxable year exceeds its adjusted basis, such United States person shall include in gross income for such taxable year an amount equal to the amount of such excess. “(2) If the adjusted basis of such stock exceeds the fair market value of such stock as of the close of such taxable year, such United States person shall be allowed a deduction for such taxable year equal to the lesser of— “(A) the amount of such excess, or “(B) the unreversed inclusions with respect to such stock. “(b) Basis Adjustments.— “(1) In general.— The adjusted basis of stock in a passive foreign investment company— “(A) shall be increased by the amount included in the gross income of the United States person under subsection (a)(1) with respect to such stock, and “(B) shall be decreased by the amount allowed as a deduction to the United States person under subsection (a)(2) with respect to such stock. “(2) Special rule for stock constructively owned.— In the case of stock in a passive foreign investment company which the United States person is treated as owning under subsection (g)— “(A) the adjustments under paragraph (1) shall apply Applicability. to such stock in the hands of the person actually holding such stock but only for purposes of determining the subsequent treatment under this chapter of the United States person with respect to such stock, and “(B) similar adjustments shall be made to the adjusted basis of the property by reason of which the United States person is treated as owning such stock. “(c) Character and Source Rules.— “(1) Ordinary treatment.— “(A) Gain.— Any amount included in gross income under subsection (a)(1), and any gain on the sale or other disposition of marketable stock in a passive foreign investment company (with respect to which an election under this section is in effect), shall be treated as ordinary income. “(B) Loss.— Any— “(i) amount allowed as a deduction under subsection (a)(2), and “(ii) loss on the sale or other disposition of marketable stock in a passive foreign investment company (with respect to which an election under this section is in effect) to the extent that the amount of such loss does not exceed the unreversed inclusions with respect to such stock, shall be treated as an ordinary loss. The amount so treated shall be treated as a deduction allowable in computing adjusted gross income. “(2) Source.— The source of any amount included in gross income under subsection (a)(1) (or allowed as a deduction under subsection (a)(2)) shall be determined in the same manner as if such amount were gain or loss (as the case may be) from the sale of stock in the passive foreign investment company. “(d) Unreversed Inclusions.— For purposes of this section, the term ‘unreversed inclusions’ means, with respect to any stock in a passive foreign investment company, the excess (if any) of— “(1) the amount included in gross income of the taxpayer under subsection (a)(1) with respect to such stock for prior taxable years, over “(2) the amount allowed as a deduction under subsection (a)(2) with respect to such stock for prior taxable years. The amount referred to in paragraph (1) shall include any amount which would have been included in gross income under subsection (a)(1) with respect to such stock for any prior taxable year but for section 1291. “(e) Marketable Stock.— For purposes of this section— “(1) In general.— The term ‘marketable stock’ means— “(A) any stock which is regularly traded on— “(i) a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or “(ii) any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this part, “(B) to the extent provided in regulations, stock in any foreign corporation which is comparable to a regulated investment company and which offers for sale or has outstanding any stock of which it is the issuer and which is redeemable at its net asset value, and “(C) to the extent provided in regulations, any option on stock described in subparagraph (A) or (B). “(2) Special rule for regulated investment companies.— In the case of any regulated investment company which is offering for sale or has outstanding any stock of which it is the issuer and which is redeemable at its net asset value, all stock in a passive foreign investment company which it owns directly or indirectly shall be treated as marketable stock Applicability. for purposes of this section. Except as provided in regulations, similar treatment as marketable stock shall apply in the case of any other regulated investment company which publishes net asset valuations at least annually. “(f) Treatment of Controlled Foreign Corporations Which are Shareholders in Passive Foreign Investment Companies.— In the case of a foreign corporation which is a controlled foreign corporation and which owns (or is treated under subsection (g) as owning) stock in a passive foreign investment company— “(1) this section (other than subsection (c)(2)) shall apply to such foreign corporation in the same manner as if such corporation were a United States person, and “(2) for purposes of subpart F of part III of subchapter N— “(A) any amount included in gross income under subsection (a)(1) shall be treated as foreign personal holding company income described in section 954(c)(1)(A), and “(B) any amount allowed as a deduction under subsection (a)(2) shall be treated as a deduction allocable to foreign personal holding company income so described. “(g) Stock Owned Through Certain Foreign Entities.— Except as provided in regulations— “(1) In general.— For purposes of this section, stock owned, directly or indirectly, by or for a foreign partnership or foreign trust or foreign estate shall be considered as being owned proportionately by its partners or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person. “(2) Treatment of certain dispositions.— In any case in which a United States person is treated as owning stock in a passive foreign investment company by reason of paragraph (1)— “(A) any disposition by the United States person or by any other person which results in the United States person being treated as no longer owning such stock, and “(B) any disposition by the person owning such stock, shall be treated as a disposition by the United States person of the stock in the passive foreign investment company. “(h) Coordination With Section 851(b).— For purposes of paragraphs (2) and (3) of section 851(b), any amount included in gross income under subsection (a) shall be treated as a dividend. “(i) Stock Acquired From a Decedent.— In the case of stock of a passive foreign investment company which is acquired by bequest, devise, or inheritance (or by the decedent’s estate) and with respect to which an election under this section was in effect as of the date of the decedent’s death, notwithstanding section 1014, the basis of such stock in the hands of the person so acquiring it shall be the adjusted basis of such stock in the hands of the decedent immediately before his death (or, if lesser, the basis which would have been determined under section 1014 without regard to this subsection). “(j) Coordination With Section 1291 for First Year of Election.— “(1) Taxpayers other than regulated investment companies.— “(A) In general.— If the taxpayer elects the application of this section with respect to any marketable stock in a corporation after the beginning of the taxpayer’s holding period in such stock, and if the requirements of subparagraph (B) are not satisfied, section 1291 shall apply to— “(i) any distributions with respect to, or disposition of, such stock in the first taxable year of the taxpayer for which such election is made, and “(ii) any amount which, but for section 1291, would have been included in gross income under subsection (a) with respect to such stock for such taxable year in the same manner as if such amount were gain on the disposition of such stock. “(B) Requirements.— The requirements of this subparagraph are met if, with respect to each of such corporation’s taxable years for which such corporation was a passive foreign investment company and which begin after December 31, 1986, and included any portion of the taxpayer’s holding period in such stock, such corporation was treated as a qualified electing fund under this part with respect to the taxpayer. “(2) Special rules for regulated investment companies.— “(A) In general.— If a regulated investment company elects the application of this section with respect to any marketable stock in a corporation after the beginning of the taxpayer’s holding period in such stock, then, with respect to such company’s first taxable year for which such company elects the application of this section with respect to such stock— “(i) section 1291 shall not apply to such stock with respect to any distribution or disposition during, or amount included in gross income under this section for, such first taxable year, but “(ii) such regulated investment company’s tax under this chapter for such first taxable year shall be increased by the aggregate amount of interest which would have been determined under section 1291(c)(3) if section 1291 were applied without regard to this subparagraph. Clause (ii) shall not apply if for the preceding taxable year the company elected to mark to market the stock held by such company as of the last day of such preceding taxable year. “(B) Disallowance of deduction.— No deduction shall be allowed to any regulated investment company for the increase in tax under subparagraph (A)(ii). “(k) Election.— This section shall apply to marketable stock in a passive foreign investment company which is held by a United States person only if such person elects to apply this section with respect to such stock. Such an election shall apply to the taxable year for which made and all subsequent taxable years unless— “(1) such stock ceases to be marketable stock, or “(2) the Secretary consents to the revocation of such election. “(l) Transition Rule for Individuals Becoming Subject to United States Tax.— If any individual becomes a United States person in a taxable year beginning after December 31, 1997, solely for purposes of this section, the adjusted basis (before adjustments under subsection (b)) of any marketable stock in a passive foreign investment company owned by such individual on the first day of such taxable year shall be treated as being the greater of its fair market value on such first day or its adjusted basis on such first day.”.

13. 1997

    Pub. L. 105–34 § 1123(b)(2) · 111 Stat. 788

    Struck · 26 U.S.C. § 1297(a)

    Pub. L. 105–34, § 1123(b)(2), struck out concluding provisions which read as follows: “In the case of a controlled foreign corporation (or any other foreign corporation if such corporation so elects), the determination under paragraph (2) shall be based on the adjusted bases (as determined for purposes of computing earnings and profits) of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

    Source evidence

    Code amendment note
    Subsec. (a). Pub. L. 105–34, § 1123(b)(2), struck out concluding provisions which read as follows: “In the case of a controlled foreign corporation (or any other foreign corporation if such corporation so elects), the determination under paragraph (2) shall be based on the adjusted bases (as determined for purposes of computing earnings and profits) of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.”

    Enacted provision · exact public law section
    (2) by striking the last two sentences.

14. 1997

    Pub. L. 105–34 § 1123(b)(1) · 111 Stat. 788

    Substituted · 26 U.S.C. § 1297(a)(2)

    Pub. L. 105–34, § 1123(b)(1), substituted “(as determined in accordance with subsection (e))” for “(by value)”

    Source evidence

    Code amendment note
    Subsec. (a)(2). Pub. L. 105–34, § 1123(b)(1), substituted “(as determined in accordance with subsection (e))” for “(by value)”.

    Enacted provision · exact public law section
    (1) by striking “(by value)” and inserting “(as determined in accordance with subsection (e))”, and

15. 1997

    Pub. L. 105–34 § 1122(d)(4) · 111 Stat. 788

    Struck · 26 U.S.C. § 1297(b)(3)

    Pub. L. 105–34, § 1122(d)(4), struck out par. (3) which consisted of subpars. (A) to (C) relating to treatment of certain dealers in securities

    Source evidence

    Code amendment note
    Subsec. (b)(3). Pub. L. 105–34, § 1122(d)(4), struck out par. (3) which consisted of subpars. (A) to (C) relating to treatment of certain dealers in securities.

    Enacted provision · exact public law section
    (4) Paragraph (3) of section 1297(b), as redesignated by subsection (a), is hereby repealed.

16. 1997

    Pub. L. 105–34 § 1123(a) · 111 Stat. 788

    Added · 26 U.S.C. § 1297(e)

    Pub. L. 105–34, § 1123(a), added subsec. (e) relating to methods for measuring assets

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 105–34, § 1123(a), added subsec. (e) relating to methods for measuring assets.

    Enacted provision · exact public law section
    (a) In General.— Section 1297, as redesignated by section 1122, is amended by adding at the end the following new subsection: “(e) Methods for Measuring Assets.— “(1) Determination using value.— The determination under subsection (a)(2) shall be made on the basis of the value of the assets of a foreign corporation if— “(A) such corporation is a publicly traded corporation for the taxable year, or “(B) paragraph (2) does not apply to such corporation for the taxable year. “(2) Determination using adjusted bases.— The determination under subsection (a)(2) shall be based on the adjusted bases (as determined for the purposes of computing earnings and profits) of the assets of a foreign corporation if such corporation is not described in paragraph (1)(A) and such corporation— “(A) is a controlled foreign corporation, or “(B) elects the application of this paragraph. An election under subparagraph (B), once made, may be revoked only with the consent of the Secretary. “(3) Publicly traded corporation.— For purposes of this subsection, a foreign corporation shall be treated as a publicly traded corporation if the stock in the corporation is regularly traded on— “(A) a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section UA of the Securities and Exchange Act of 1934, or “(B) any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this subsection.”.

17. 1997

    Pub. L. 105–34 § 1121 · 111 Stat. 788

    Added · 26 U.S.C. § 1297(e)

    Pub. L. 105–34, § 1121, added subsec. (e) relating to exception for United States shareholders of controlled foreign corporations

    Target inherited from the preceding amendment note.

    Source evidence

    Code amendment note
    Pub. L. 105–34, § 1121, added subsec. (e) relating to exception for United States shareholders of controlled foreign corporations.

    Enacted provision · exact public law section
    SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN CORPORATIONS NOT SUBJECT TO PFIC INCLUSION. Section 1296 is amended by adding at the end the following new subsection: “(e) Exception for United States Shareholders of Controlled Foreign Corporations.— “(1) In general.— For purposes of this part, a corporation shall not be treated with respect to a shareholder as a passive foreign investment company during the qualified portion of such shareholder’s holding period with respect to stock in such corporation. “(2) Qualified portion.— For purposes of this subsection, the term ‘qualified portion’ means the portion of the shareholder’s holding period— “(A) which is after December 31, 1997, and “(B) during which the shareholder is a United States shareholder (as defined in section 951(b)) of the corporation and the corporation is a controlled foreign corporation. “(3) New holding period if qualified portion ends.— “(A) In general.— Except as provided in subparagraph (B), if the qualified portion of a shareholder’s holding period with respect to any stock ends after December 31, 1997, solely for purposes of this part, the shareholder’s holding period with respect to such stock shall be treated as beginning as of the first day following such period. “(B) Exception.— Subparagraph (A) shall not apply if such stock was, with respect to such shareholder, stock in a passive foreign investment company at any time before the qualified portion of the shareholder’s holding period with respect to such stock and no election under section 1298(b)(1)is made”.

18. 1998

    Internal Revenue Service Restructuring and Reform Act of 1998

    Pub. L. 105–206 § 6011(d) · 112 Stat. 685

    Redesignated · 26 U.S.C. § 1297(e)

    Pub. L. 105–206, § 6011(d), redesignated subsec. (e), relating to methods for measuring assets, as (f)

    Source evidence

    Code amendment note
    Subsec. (e). Pub. L. 105–206, § 6011(d), redesignated subsec. (e), relating to methods for measuring assets, as (f).

    Enacted provision · exact public law section
    (d) Amendment Related to Section 1123 of 1997 Act.— Subsection (e) of section 1297 of the 1986 Code added by section 1123 of the 1997 Act is redesignated as subsection (f).

19. 1998

    Internal Revenue Service Restructuring and Reform Act of 1998

    Pub. L. 105–206 § 6011(b)(1) · 112 Stat. 685

    Added · 26 U.S.C. § 1297(e)(4)

    Pub. L. 105–206, § 6011(b)(1), added par. (4)

    Source evidence

    Code amendment note
    Subsec. (e)(4). Pub. L. 105–206, § 6011(b)(1), added par. (4).

    Enacted provision · exact public law section
    (1) Subsection (e) of section 1297 of the 1986 Code is amended by adding at the end the following new paragraph: “(4) Treatment of holders of options.— Paragraph (1) shall not apply to stock treated as owned by a person by reason of section 1298(a)(4) (relating to the treatment of a person that has an option to acquire stock as owning such stock) unless such person establishes that such stock is owned (within the meaning of section 958(a)) by a United States shareholder (as defined in section 951(b)) who is not exempt from tax under this chapter.”.

20. 1998

    Internal Revenue Service Restructuring and Reform Act of 1998

    Pub. L. 105–206 § 6011(d) · 112 Stat. 685

    Redesignated · 26 U.S.C. § 1297(f)

    Pub. L. 105–206, § 6011(d), redesignated subsec. (e), relating to methods for measuring assets, as (f)

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 105–206, § 6011(d), redesignated subsec. (e), relating to methods for measuring assets, as (f).

    Enacted provision · exact public law section
    (d) Amendment Related to Section 1123 of 1997 Act.— Subsection (e) of section 1297 of the 1986 Code added by section 1123 of the 1997 Act is redesignated as subsection (f).

21. 2007

    Tax Technical Corrections Act of 2007

    Pub. L. 110–172 § 11(g)(18) · 121 Stat. 2473

    Struck · 26 U.S.C. § 1297(b)(2)(D)

    Pub. L. 110–172, § 11(g)(18), which directed amendment of subpar. (D) by striking out “foreign trade income of a FSC or”, was executed by striking out “foreign trade income of an FSC or” before “export trade income” to reflect the probable intent of Congress

    Source evidence

    Code amendment note
    Subsec. (b)(2)(D). Pub. L. 110–172, § 11(g)(18), which directed amendment of subpar. (D) by striking out “foreign trade income of a FSC or”, was executed by striking out “foreign trade income of an FSC or” before “export trade income” to reflect the probable intent of Congress.

    Enacted provision · exact public law section
    (18) Subparagraph (D) of section 1297(b)(2) is amended by striking “foreign trade income of a FSC or”.

22. 2007

    Tax Technical Corrections Act of 2007

    Pub. L. 110–172 § 11(a)(24)(A) · 121 Stat. 2473

    1. Redesignated · 26 U.S.C. § 1297(d)(f)

       Pub. L. 110–172, § 11(a)(24)(A), redesignated subsecs. (e) and (f) as (d) and (e), respectively

    2. Struck · 26 U.S.C. § 1297(d)(f)

       Pub. L. 110–172, § 11(a)(24)(A), struck out heading and text of former subsec. (d). Text read as follows: “For purposes of this part, the term ‘passive foreign investment company’ does not include any foreign investment company to which section 1247 applies.”

    Source evidence

    Code amendment note
    Subsecs. (d) to (f). Pub. L. 110–172, § 11(a)(24)(A), redesignated subsecs. (e) and (f) as (d) and (e), respectively, and struck out heading and text of former subsec. (d). Text read as follows: “For purposes of this part, the term ‘passive foreign investment company’ does not include any foreign investment company to which section 1247 applies.”

    Enacted provision · exact public law section
    (A) Section 1297 is amended by striking subsection (d) and by redesignating subsections (e) and (f) as subsections (d) and (e), respectively.

23. 2017

    Pub. L. 115–97 § 14501(a) · 131 Stat. 2054

    Amended · 26 U.S.C. § 1297(b)(2)(B)

    Pub. L. 115–97, § 14501(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business and which would be subject to tax under subchapter L if it were a domestic corporation,”

    Source evidence

    Code amendment note
    Subsec. (b)(2)(B). Pub. L. 115–97, § 14501(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business and which would be subject to tax under subchapter L if it were a domestic corporation,”.

    Enacted provision · exact public law section
    (a) In General.— Section 1297(b)(2)(B) 26 USC 1297. is amended to read as follows: “(B) derived in the active conduct of an insurance business by a qualifying insurance corporation (as defined in subsection (f)),” .

    Effective date note
    Pub. L. 115–97, title I, § 14501(c), Dec. 22, 2017, 131 Stat. 2235, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.”

24. 2017

    Pub. L. 115–97 § 14501(b) · 131 Stat. 2054

    Added · 26 U.S.C. § 1297(f)

    Pub. L. 115–97, § 14501(b), added subsec. (f)

    Source evidence

    Code amendment note
    Subsec. (f). Pub. L. 115–97, § 14501(b), added subsec. (f).

    Enacted provision · exact public law section
    (b) Qualifying Insurance Corporation Defined.— Section 1297 is amended by adding at the end the following new subsection: “(f) Qualifying Insurance Corporation.— For purposes of subsection (b)(2)(B)— “(1) In general.— The term ‘qualifying insurance corporation’ means, with respect to any taxable year, a foreign corporation— “(A) which would be subject to tax under subchapter L if such corporation were a domestic corporation, and “(B) the applicable insurance liabilities of which constitute more than 25 percent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s applicable financial statement for the last year ending with or within the taxable year. “(2) Alternative facts and circumstances test for certain corporations.— If a corporation fails to qualify as a qualified insurance corporation under paragraph (1) solely because the percentage determined under paragraph (1)(B) is 25 percent or less, a United States person that owns stock in such corporation may elect to treat such stock as stock of a qualifying insurance corporation if— “(A) the percentage so determined for the corporation is at least 10 percent, and “(B) under regulations provided by the Secretary, based on the applicable facts and circumstances— “(i) the corporation is predominantly engaged in an insurance business, and “(ii) such failure is due solely to runoff-related or rating-related circumstances involving such insurance business. “(3) Applicable insurance liabilities.— For purposes of this subsection— “(A) In general.— The term ‘applicable insurance liabilities’ means, with respect to any life or property and casualty insurance business— “(i) loss and loss adjustment expenses, and “(ii) reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks. “(B) Limitations on amount of liabilities.— Any amount determined under clause (i) or (ii) of subparagraph (A) shall not exceed the lesser of such amount— “(i) as reported to the applicable insurance regulatory body in the applicable financial statement described in paragraph (4)(A) (or, if less, the amount required by applicable law or regulation), or “(ii) as determined under regulations prescribed by the Secretary. “(4) Other definitions and rules.— For purposes of this subsection— “(A) Applicable financial statement.— The term ‘applicable financial statement’ means a statement for financial reporting purposes which— “(i) is made on the basis of generally accepted accounting principles, “(ii) is made on the basis of international financial reporting standards, but only if there is no statement that meets the requirement of clause (i), or “(iii) except as otherwise provided by the Secretary in regulations, is the annual statement which is required to be filed with the applicable insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii). “(B) Applicable insurance regulatory body.— The term ‘applicable insurance regulatory body’ means, with respect to any insurance business, the entity established by law to license, authorize, or regulate such business and to which the statement described in subparagraph (A) is provided.” .

    Effective date note
    Pub. L. 115–97, title I, § 14501(c), Dec. 22, 2017, 131 Stat. 2235, provided that: “The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2017.”

26 of 26 references resolved to an enrolled provision