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

Page 2413 TITLE 26—INTERNAL REVENUE CODE § 1295 (f) Treatment of loans to shareholder For purposes of this section and section 1293, any loan by a qualified electing fund (directly or indirectly) to a shareholder of such fund shall be treated as a distribution to such shareholder. (g) Cross reference For provisions providing for interest for the pe- riod of the extension under this section, see section 6601. (Added Pub. L. 99–514, title XII, § 1235(a), Oct. 22, 1986, 100 Stat. 2570; amended Pub. L. 100–647, title I, § 1012(p)(4), (8), (25), (34), Nov. 10, 1988, 102 Stat. 3515, 3517, 3519, 3522; Pub. L. 108–357, title IV, § 413(c)(25), Oct. 22, 2004, 118 Stat. 1509.) Editorial Notes AMENDMENTS 2004—Subsec. (a)(2). Pub. L. 108–357 amended heading and text of par. (2) generally. Prior to amendment, text read as follows: ‘‘The taxpayer may not make an elec- tion under paragraph (1) with respect to the undistrib- uted 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.’’ 1988—Subsec. (c)(2). Pub. L. 100–647, § 1012(p)(4), (34), substituted ‘‘Transfers’’ for ‘‘Dispositions’’ in heading and ‘‘is transferred’’ for ‘‘is disposed of’’ in subpar. (A), and in closing provisions substituted ‘‘such transfer’’ for ‘‘such disposition’’ in two places and inserted at end ‘‘To the extent provided in regulations, the preceding sentence shall not apply in the case of a transfer in a transaction with respect to which gain or loss is not recognized (in whole or in part), and the transferee in such transaction shall succeed to the treatment under this section of the transferor.’’ Subsec. (f). Pub. L. 100–647, § 1012(p)(25), added subsec. (f). Subsec. (g). Pub. L. 100–647, § 1012(p)(8), added subsec. (g). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign cor- porations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004 Amendments note under section 1 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. § 1295. Qualified electing fund (a) General rule For purposes of this part, any passive foreign investment company shall be treated as a quali- fied electing fund with respect to the taxpayer if— (1) an election by the taxpayer under sub- section (b) applies to such company for the taxable year, and (2) such company complies with such re- quirements as the Secretary may prescribe for purposes of— (A) determining the ordinary earnings and net capital gain of such company, and (B) otherwise carrying out the purposes of this subpart. (b) Election (1) In general A taxpayer may make an election under this subsection with respect to any passive foreign investment company for any taxable year of the taxpayer. Such an election, once made with respect to any company, shall apply to all subsequent taxable years of the taxpayer with respect to such company unless revoked by the taxpayer with the consent of the Sec- retary. (2) When made An election under this subsection may be made for any taxable year at any time on or before the due date (determined with regard to extensions) for filing the return of the tax im- posed by this chapter for such taxable year. To the extent provided in regulations, such an election may be made later than as required in the preceding sentence where the taxpayer fails to make a timely election because the taxpayer reasonably believed that the com- pany was not a passive foreign investment company. (Added Pub. L. 99–514, title XII, § 1235(a), Oct. 22, 1986, 100 Stat. 2571; amended Pub. L. 100–647, title I, § 1012(p)(37)(A), title VI, § 6127(a), Nov. 10, 1988, 102 Stat. 3522, 3715.) Editorial Notes AMENDMENTS 1988—Subsec. (a). Pub. L. 100–647, § 6127(a), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: ‘‘For purposes of this part, the term ‘qualified electing fund’ means any passive foreign in- vestment 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 pre- scribe 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 out- standing stock, and ‘‘(C) otherwise carrying out the purposes of this subpart.’’ Subsec. (b). Pub. L. 100–647, § 6127(a), amended subsec. (b) generally. Prior to amendment, subsec. (b) read as follows: ‘‘(1) IN GENERAL.—A passive foreign investment com- pany 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 Sec- retary. ‘‘(2) WHEN MADE.—An election under this subsection may be made for any taxable year at any time before Page 2414 TITLE 26—INTERNAL REVENUE CODE § 1296 the 15th day of the 3rd month of the following taxable year. To the extent provided in regulations, such an election may be made later than as required by the pre- ceding sentence in cases where the company failed to make a timely election because it reasonably believed it was not a passive foreign investment company.’’ Pub. L. 100–647, § 1012(p)(37)(A), inserted sentence at end of par. (2) permitting a later election when a com- pany reasonably believed it was not a passive foreign investment company. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 1012(p)(37)(A) of Pub. L. 100–647 effective, except as otherwise provided, as if in- cluded 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. Pub. L. 100–647, title VI, § 6127(c), Nov. 10, 1988, 102 Stat. 3715, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and section 1291 of this title] shall take effect as if included in the amendments made by section 1235 of the Reform Act [Pub. L. 99–514]. ‘‘(2) TIME FOR MAKING ELECTION.—The period during which an election under section 1295(b) of the 1986 Code may be made shall in no event expire before the date 60 days after the date of the enactment of this Act [Nov. 10, 1988].’’ 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. EXPIRATION OF SUBSECTION (b) ELECTION PERIOD Pub. L. 100–647, title I, § 1012(p)(37)(B), Nov. 10, 1988, 102 Stat. 3522, provided that: ‘‘The period during which an election under section 1295(b) of the 1986 Code may be made shall in no event expire before the date 60 days after the date of enactment of this Act [Nov. 10, 1988].’’ SUBPART C—ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK Sec. 1296. Election of mark to market for marketable stock. Editorial Notes PRIOR PROVISIONS A prior subpart C, consisting of sections 1296 and 1297 of this title, was redesignated subpart D consisting of sections 1297 and 1298. AMENDMENTS 1997—Pub. L. 105–34, title XI, § 1122(a), Aug. 5, 1997, 111 Stat. 972, added subpart C and item 1296. Former sub- part C redesignated D. § 1296. Election of mark to market for market- able 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 per- son— (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 ex- ceeds 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 for- eign investment company— (A) shall be increased by the amount in- cluded 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 al- lowed 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 in- vestment company which the United States person is treated as owning under subsection (g)— (A) the adjustments under paragraph (1) shall apply 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 ordi- nary 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 de- duction 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