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26 U.S.C. § 1298 — Special rules

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26 U.S.C. § 1298 — Special rules

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Source location: Title 26, Chapter 1, § 1298; chapter-001-normal-taxes-and-surtaxes.md

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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(c)) in respect of stock which the taxpayer is treated as owning under subsection (a). (6) **Dispositions** — Except as provided in regulations, 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) **Treatment of certain foreign corporations owning stock in 25-percent owned domestic corporation** (A) *In general* — If— (i) a foreign corporation is subject to the tax imposed by section 531 (or waives any benefit under any treaty which would otherwise prevent the imposition of such tax), and (ii) such foreign corporation owns at least 25 percent (by value) of the stock of a domestic corporation, for purposes of determining whether such foreign corporation is a passive foreign investment company, any qualified stock held by such domestic corporation shall be treated as an asset which does not produce passive income (and is not held for the production of passive income) and any amount included in gross income with respect to such stock shall not be treated as passive income. (B) *Qualified stock* — For purposes of subparagraph (A), the term “qualified stock” means any stock in a C corporation which is a domestic corporation and which is not a regulated investment company or real estate investment trust. (8) **Treatment of certain subpart F inclusions** — Any amount included in gross income under section 951(a)(1)(B) shall be treated as a distribution received with respect to the stock. **(c) Treatment of stock held by pooled income fund** If stock in a passive foreign investment company is owned (or treated as owned under subsection (a)) by a pooled income fund (as defined in section 642(c)(5)) and no portion of any gain from a disposition of such stock may be allocated to income under the terms of the governing instrument of such fund— (1) section 1291 shall not apply to any gain on a disposition of such stock by such fund if (without regard to section 1291) a deduction would be allowable with respect to such gain under section 642(c)(3), (2) section 1293 shall not apply with respect to such stock, and (3) in determining whether section 1291 applies to any distribution in respect of such stock, subsection (d) of section 1291 shall not apply. **(d) Treatment of certain leased property** For purposes of this part— (1) **In general** — Any tangible personal property with respect to which a foreign corporation is the lessee under a lease with a term of at least 12 months shall be treated as an asset actually held by such corporation. (2) **Amount taken into account** (A) *In general* — The amount taken into account under section 1297(a)(2) with respect to any asset to which paragraph (1) applies shall be the unamortized portion (as determined under regulations prescribed by the Secretary) of the present value of the payments under the lease for the use of such property. (B) *Present value* — For purposes of subparagraph (A), the present value of payments described in subparagraph (A) shall be determined in the manner provided in regulations prescribed by the Secretary— (i) as of the beginning of the lease term, and (ii) except as provided in such regulations, by using a discount rate equal to the applicable Federal rate determined under section 1274(d)— (I) by substituting the lease term for the term of the debt instrument, and (II) without regard to paragraph (2) or (3) thereof. (3) **Exceptions** — This subsection shall not apply in any case where— (A) the lessor is a related person (as defined in section 954(d)(3)) with respect to the foreign corporation, or (B) a principal purpose of leasing the property was to avoid the provisions of this part. **(e) Special rules for certain intangibles** For purposes of this part— (1) **Research expenditures** — The adjusted basis of the total assets of a controlled foreign corporation shall be increased by the research or experimental expenditures (within the meaning of section 174) paid or incurred by such foreign corporation during the taxable year and the preceding 2 taxable years. Any expenditure otherwise taken into account under the preceding sentence shall be reduced by the amount of any reimbursement received by the controlled foreign corporation with respect to such expenditure. (2) **Certain licensed intangibles** (A) *In general* — In the case of any intangible property (as defined in section 367(d)(4)) with respect to which a controlled foreign corporation is a licensee and which is used by such foreign corporation in the active conduct of a trade or business, the adjusted basis of the total assets of such foreign corporation shall be increased by an amount equal to 300 percent of the payments made during the taxable year by such foreign corporation for the use of such intangible property. (B) *Exceptions* — Subparagraph (A) shall not apply to— (i) any payments to a foreign person if such foreign person is a related person (as defined in section 954(d)(3)) with respect to the controlled foreign corporation, and (ii) any payments under a license if a principal purpose of entering into such license was to avoid the provisions 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.

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26 U.S.C. § 532 — Corporations subject to accumulated earnings tax

**(a) General rule** The accumulated earnings tax imposed by section 531 shall apply to every corporation (other than those described in subsection (b)) formed or availed of for the purpose of avoiding the income tax with respect to its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed. **(b) Exceptions** The accumulated earnings tax imposed by section 531 shall not apply to— (1) a personal holding company (as defined in section 542), (2) a corporation exempt from tax under subchapter F (section 501 and following), or (3) a passive foreign investment company (as defined in section 1297). **(c) Application determined without regard to number of shareholders** The application of this part to a corporation shall be determined without regard to the number of shareholders of such corporation.

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26 U.S.C. § 904 — Limitation on credit

**(a) Limitation** The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer’s taxable income from sources without the United States (but not in excess of the taxpayer’s entire taxable income) bears to his entire taxable income for the same taxable year. **(b) Taxable income for purpose of computing limitation** (1) **Personal exemptions** — For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b). (2) **Capital gains** — For purposes of this section— (A) *In general* — Taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income. (B) *Special rules where capital gain rate differential* — In the case of any taxable year for which there is a capital gain rate differential— (i) in lieu of applying subparagraph (A), the taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by the rate differential portion of foreign source net capital gain, (ii) the entire taxable income shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by the rate differential portion of net capital gain, and (iii) for purposes of determining taxable income from sources outside the United States, any net capital loss (and any amount which is a short-term capital loss under section 1212(a)) from sources outside the United States to

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26 U.S.C. § 39 — Carryback and carryforward of unused credits

**(a) In general** (1) **1-year carryback and 20-year carryforward** — If the sum of the business credit carryforwards to the taxable year plus the amount of the current year business credit for the taxable year exceeds the amount of the limitation imposed by subsection (c) of section 38 for such taxable year (hereinafter in this section referred to as the “unused credit year”), such excess (to the extent attributable to the amount of the current year business credit) shall be— (A) a business credit carryback to the taxable year preceding the unused credit year, and (B) a business credit carryforward to each of the 20 taxable years following the unused credit year, and, subject to the limitations imposed by subsections (b) and (c), shall be taken into account under the provisions of section 38(a) in the manner provided in section 38(a). (2) **Amount carried to each year** (A) *Entire amount carried to first year* — The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 21 taxable years to which (by reason of paragraph (1)) such credit may be carried. (B) *Amount carried to other 20 years* — The amount of the unused credit for the unused credit year shall be carried to each of the other 20 taxable years to the extent that such unused credit may not be taken into account under section 38(a) for a prior taxable year because of the limitations of subsections (b) and (c). (3) **5-year carryback for marginal oil and gas well production credit** — Notwithstanding subsection (d), in the case of the marginal oil and gas well production credit— (A) this section shall be applied separately from the business credit (other than the marginal oil and gas well production credit), (B) paragraph (1) shall be applied

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26 U.S.C. § 23 — Adoption expenses

**(a) Allowance of credit** (1) **In general** — In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter the amount of the qualified adoption expenses paid or incurred by the taxpayer. (2) **Year credit allowed** — The credit under paragraph (1) with respect to any expense shall be allowed— (A) in the case of any expense paid or incurred before the taxable year in which such adoption becomes final, for the taxable year following the taxable year during which such expense is paid or incurred, and (B) in the case of an expense paid or incurred during or after the taxable year in which such adoption becomes final, for the taxable year in which such expense is paid or incurred. (3) **$10,000 credit for adoption of child with special needs regardless of expenses** — In the case of an adoption of a child with special needs which becomes final during a taxable year, the taxpayer shall be treated as having paid during such year qualified adoption expenses with respect to such adoption in an amount equal to the excess (if any) of $10,000 over the aggregate qualified adoption expenses actually paid or incurred by the taxpayer with respect to such adoption during such taxable year and all prior taxable years. (4) **Portion of credit refundable** — So much of the credit allowed under paragraph (1) as does not exceed $5,000 shall be treated as a credit allowed under subpart C and not as a credit allowed under this subpart. **(b) Limitations** (1) **Dollar limitation** — The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $10,000. (2) **Income limitation** (A) *In general* —

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26 U.S.C. § 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 company which begins after December 31, 1986, and for which it was a passive foreign investment company, 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— (i) for purposes of applying this section to an excess distribution, such holding period shall be treated as ending on the date of such distribution, and (ii) if section 1296 applied to such stock with respect to the taxpayer for any prior taxable year, such holding period shall be treated as beginning on the first day of the first taxable year beginning after the last taxable year for which section 1296 so applied. (B) *Current year* — The term “current year”

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26 U.S.C. § 1 — Tax imposed

**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of— (1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and (2) every surviving spouse (as defined in section 2(a)), a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000. **(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000. **(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50

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26 U.S.C. § 1297 — 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 (as determined in accordance with subsection (e)) 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” means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c). (2) **Exceptions** — 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), (B) derived in the active conduct of an insurance business by a qualifying insurance corporation (as defined in subsection (f)), (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, or (D) which is export trade income of an export trade corporation (as defined in section 971). For purposes of subparagraph (C), the term “related person” has the meaning given such term by section 954(d)(3) determined by substituting “foreign corporat

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26 U.S.C. § 951 — Amounts included in gross income of United States shareholders

**(a) Amounts included** (1) **In general** — If a foreign corporation is a controlled foreign corporation at any time during a taxable year of the foreign corporation (in this subsection referred to as the “CFC year”)— (A) each United States shareholder which owns (within the meaning of section 958(a)) stock in such corporation on any day during the CFC year shall include in gross income such shareholder’s pro rata share (determined under paragraph (2)) of the corporation’s subpart F income for the CFC year, and (B) each United States shareholder which owns (within the meaning of section 958(a)) stock in such corporation on the last day, in the CFC year, on which such corporation is a controlled foreign corporation shall include in gross income the amount determined under section 956 with respect to such shareholder for the CFC year (but only to the extent not excluded from gross income under section 959(a)(2)). (2) **Pro rata share of subpart F income** — A United States shareholder’s pro rata share of a controlled foreign corporation’s subpart F income for a CFC year shall be the portion of such income which is attributable to— (A) the stock of such corporation owned (within the meaning of section 958(a)) by such shareholder, and (B) any period of the CFC year during which— (i) such shareholder owned (within the meaning of section 958(a)) such stock, (ii) such shareholder was a United States shareholder of such corporation, and (iii) such corporation was a controlled foreign corporation. (3) **Taxable year of inclusion** — Any amount required to be included in gross income by a United States shareholder under paragraph (1) with respect to a CFC year shall be included in gross income for the shareholder’s taxable year which includes the l

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26 U.S.C. § 1298 — Special rules

Page 2420 TITLE 26—INTERNAL REVENUE CODE § 1298 corporations end, see section 13231(e) of Pub. L. 103–66, set out as a note under section 951 of this title. EFFECTIVE DATE OF 1988 AMENDMENT 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 cor- porations beginning after Dec. 31, 1986, see section 1235(h) of Pub. L. 99–514, set out as a note under section 1291 of this title. § 1298. 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 ef- fect is to treat stock of a passive foreign in- vestment company as owned by a United States person, and (B) except to the extent provided in regu- lations, 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 indi- rectly, 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 cor- poration. (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 com- pany, subparagraph (A) shall be

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