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United States Code (Last Updated: May 24, 2014) |
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Title 26. INTERNAL REVENUE CODE |
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SubTitle A. Income Taxes |
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Chapter 1. NORMAL TAXES AND SURTAXES |
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SubChapter P. Capital Gains and Losses |
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Part VI. TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES |
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SubPart D. General Provisions |
§ 1298. Special rules
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(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. Section 1297(d) shall not apply in determining whether a corporation is a passive foreign investment company for purposes of this subparagraph.
(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) Options To the extent provided in regulations, 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 option, and each one of a series of such options, shall be considered as an option to acquire such stock.
(5) Successive application Stock considered to be owned by a person by reason of the application of paragraph (2), (3), or (4) 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 company 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 (determined without regard to the preceding sentence)) 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 investment 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) neither such corporation (nor any predecessor) was a passive foreign investment company 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 part where stock held by other entity (A) In general Under regulations, in any case in which a United States person is treated as owning stock in a passive foreign investment company by reason of subsection (a)— (i) any disposition by the United States person or the person owning such stock which results in the United States person being treated as no longer owning such stock, or (ii) any distribution of property in respect of such stock to the person holding such stock, shall be treated as a disposition by, or distribution to, the United States person with respect to the stock in the passive foreign investment company. (B) Amount treated in same manner as previously taxed income Rules similar to the rules of section 959(b) shall apply to any amount described in subparagraph (A) and to any amount included in gross income under section 1293(a) (or which would have been so included but for section 951(f)) of this part.
(3) Controlled foreign corporation For purposes of this subsection, the term “controlled foreign corporation” has the meaning given such term by section 957(a).
(f) Reporting requirement Except as otherwise provided by the Secretary, each United States person who is a shareholder of a passive foreign investment company shall file an annual report containing such information as the Secretary may require.
(g) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part.
References In Text
Section 951(f), referred to in subsec. (b)(5)(B), was redesignated section 951(d) by Pub. L. 108–357, title IV, § 413(c)(16),
Section 1296, referred to in subsec. (d)(2)(A), was renumbered section 1297 and a new section 1296 was added by Pub. L. 105–34, title XI, § 1122(a),
Amendments
2010—Subsecs. (f), (g). Pub. L. 111–147 added subsec. (f) and redesignated former subsec. (f) as (g).
2007—Subsec. (a)(2)(B). Pub. L. 110–172, § 11(a)(24)(C), substituted “Section 1297(d)” for “Section 1297(e)”.
Subsec. (b)(7) to (9). Pub. L. 110–172, § 11(f)(2), redesignated pars. (8) and (9) as (7) and (8), respectively, and struck out former par. (7) which read as follows: “Section 1246 shall not apply to earnings and profits of any company for any taxable year beginning after
1998—Subsec. (a)(2)(B). Pub. L. 105–206 inserted at end “Section 1297(e) shall not apply in determining whether a corporation is a passive foreign investment company for purposes of this subparagraph.”
1997—Pub. L. 105–34, § 1122(a), renumbered section 1297 of this title as this section.
Subsec. (b)(1). Pub. L. 105–34, § 1122(e), inserted “(determined without regard to the preceding sentence)” after “investment company” in last sentence.
1996—Subsec. (b)(9). Pub. L. 104–188, § 1501(b)(10), substituted “section 951(a)(1)(B)” for “subparagraph (B) or (C) of section 951(a)(1)”.
Subsec. (d)(2). Pub. L. 104–188, § 1703(i)(5)(B), in heading substituted “Amount taken into account” for “Determination of adjusted basis”.
Subsec. (d)(2)(A). Pub. L. 104–188, § 1703(i)(5)(A), substituted “The amount taken into account under section 1296(a)(2) with respect to any asset” for “The adjusted basis of any asset”.
Subsec. (d)(3)(B). Pub. L. 104–188, § 1501(b)(11), struck out “or section 956A” after “this part”.
Subsec. (e). Pub. L. 104–188, § 1703(i)(6), inserted “For purposes of this part—” after heading.
Subsec. (e)(2)(B)(ii). Pub. L. 104–188, § 1501(b)(11), struck out “or section 956A” after “this part”.
1993—Subsec. (b)(9). Pub. L. 103–66, § 13231(d)(2), added par. (9).
Subsecs. (d) to (f). Pub. L. 103–66, § 13231(d)(4), added subsecs. (d) and (e) and redesignated former subsec. (d) as (f).
1989—Subsec. (b)(5). Pub. L. 101–239, § 7811(i)(4)(A), substituted “where stock held” for “where held” in heading.
Subsec. (b)(5)(A). Pub. L. 101–239, § 7811(i)(4)(C), substituted “treated as a disposition by, or distribution to” for “treated as a disposition to” in concluding provisions.
Subsec. (b)(5)(A)(ii). Pub. L. 101–239, § 7811(i)(4)(B), substituted “any distribution of” for “any disposition of”.
1988—Subsec. (a)(4). Pub. L. 100–647, § 1012(p)(10)(A), added par. (4). Former par. (4) redesignated (5).
Subsec. (a)(5). Pub. L. 100–647, § 1012(p)(10), redesignated par. (4) as (5) and substituted “paragraph (2), (3), or (4)” for “paragraph (2) or (3)”.
Subsec. (b)(1). Pub. L. 100–647, § 1012(p)(36), substituted “investment company which” for “investment corporation which”.
Subsec. (b)(3)(A). Pub. L. 100–647, § 1012(p)(22), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “such corporation (and any predecessor) was not a passive foreign investment corporation for any prior taxable year,”.
Subsec. (b)(5). Pub. L. 100–647, § 1012(p)(17), substituted “part where held” for “section where stock held” in heading, and amended text generally. Prior to amendment, text read as follows: “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.”
Subsec. (b)(6). Pub. L. 100–647, § 1012(p)(20), substituted “Except as provided in regulations, if a” for “If a”.
Subsec. (b)(8). Pub. L. 100–647, § 1012(p)(24), added par. (8).
Subsecs. (c), (d). Pub. L. 100–647, § 1012(p)(35), added subsec. (c) and redesignated former subsec. (c) as (d).
Effective Date Of Amendment
Amendment by section 11(f)(2) of Pub. L. 110–172 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 11(f)(4) of Pub. L. 110–172, set out as a note under section 904 of this title.
Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.
Amendment by Pub. L. 105–34 applicable to taxable years of United States persons beginning after
Amendment by section 1501(b)(10), (11) of Pub. L. 104–188 applicable to taxable years of foreign corporations beginning after
Amendment by section 1703(i)(5), (6) of Pub. L. 104–188 effective as if included in the provision of the Revenue Reconciliation Act of 1993, Pub. L. 103–66, §§ 13001–13444, to which such amendment relates, see section 1703(o) of Pub. L. 104–188, set out as a note under section 39 of this title.
Amendment by Pub. L. 103–66 applicable to taxable years of foreign corporations beginning after
Amendment by Pub. L. 101–239 effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100–647, to which such amendment relates, see section 7817 of Pub. L. 101–239, set out as a note under section 1 of this title.
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
Section applicable to taxable years of foreign corporations beginning after