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

Page 2410 TITLE 26—INTERNAL REVENUE CODE § 1293 ‘‘Nonrecognition provisions’’, read as follows: ‘‘To the extent provided in regulations, gain shall be recognized on any disposition of stock in a passive foreign invest- ment company.’’ Subsec. (g). Pub. L. 100–647, § 1012(p)(7)(B), added sub- sec. (g). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title. EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–312 applicable to estates of decedents dying, and transfers made after Dec. 31, 2009, except as otherwise provided, see section 301(e) of Pub. L. 111–312, set out as an Effective and Termination Dates of 2010 Amendment note under section 121 of this title. Pub. L. 111–147, title V, § 521(c), Mar. 18, 2010, 124 Stat. 112, provided that: ‘‘The amendments made by this sec- tion [amending this section and section 1298 of this title] take effect on the date of the enactment of this Act [Mar. 18, 2010].’’ 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 2001 AMENDMENT Amendment by Pub. L. 107–16 applicable to estates of decedents dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107–16, set out as a note under section 121 of this title. EFFECTIVE DATE OF 1998 AMENDMENT 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. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–34 applicable to taxable years of United States persons beginning after Dec. 31, 1997, and to taxable years of foreign corporations end- ing with or within such taxable years of United States persons, see section 1124 of Pub. L. 105–34, set out as a note under section 532 of this title. EFFECTIVE DATE OF 1988 AMENDMENT Amendment by section 1012(p)(1), (3), (6), (7), (9), (12)–(14), (28), (31), (33) of Pub. L. 100–647 effective, ex- cept as otherwise provided, as if included in the provi- sion 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. Amendment by section 6127(b) of Pub. L. 100–647 effec- tive as if included in the amendments made by section 1235 of Pub. L. 99–514, see section 6127(c)(1) of Pub. L. 100–647, set out as a note under section 1295 of this title. EFFECTIVE DATE Pub. L. 99–514, title XII, § 1235(h), Oct. 22, 1986, 100 Stat. 2576, provided that: ‘‘The amendments made by this section [enacting this section and sections 1293 to 1297 of this title and amending sections 532, 542, 551, 851, 904, 951, 1246, and 6503 of this title] shall apply to tax- able years of foreign corporations beginning after De- cember 31, 1986.’’ SUBPART B—TREATMENT OF QUALIFIED ELECTING FUNDS Sec. 1293. Current taxation of income from qualified electing funds. 1294. Election to extend time for payment of tax on undistributed earnings. 1295. Qualified electing fund. § 1293. Current taxation of income from qualified electing funds (a) Inclusion (1) In general Every United States person who owns (or is treated under section 1298(a) as owning) stock of a qualified electing fund at any time during the taxable year of such fund shall include in gross income— (A) as ordinary income, such shareholder’s pro rata share of the ordinary earnings of such fund for such year, and (B) as long-term capital gain, such share- holder’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 dis- tributed to each shareholder a pro rata share of that day’s ratable share of the fund’s ordinary earnings and net capital gain for such year. To the extent provided in regulations, if the fund establishes to the satisfaction of the Secretary that it uses a shorter period than the taxable year to determine shareholders’ interests in the earnings of such fund, pro rata shares may be determined by using such shorter period. (c) Previously taxed amounts distributed tax 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, for purposes of this chapter, as a distribution which is not a divi- dend; except that such distribution shall imme- diately reduce earnings and profits. If the pas- sive foreign investment company is a controlled foreign corporation (as defined in section 957(a)), the preceding sentence shall not apply to any United States shareholder (as defined in section 951(b)) in such corporation, and, in applying sec- tion 959 to any such shareholder, any inclusion under this section shall be treated as an inclu- sion under section 951(a)(1)(A). (d) Basis adjustments The basis of the taxpayer’s stock in a passive foreign investment company shall be— Page 2411 TITLE 26—INTERNAL REVENUE CODE § 1293 (1) increased by any amount which is in- cluded 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 includ- ible in the income of the taxpayer by reason of subsection (c). A similar rule shall apply also in the case of any property if by reason of holding such property the taxpayer is treated under section 1298(a) as owning stock in a qualified electing fund. (e) Ordinary earnings For purposes of this section— (1) Ordinary earnings The term ‘‘ordinary earnings’’ means the ex- cess 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 earn- ings and profits for such taxable year. (3) Determination of earnings and profits The earnings and profits of any qualified electing fund shall be determined without re- gard to paragraphs (4), (5), and (6) of section 312(n). Under regulations, the preceding sen- tence shall not apply to the extent it would in- crease earnings and profits by an amount which was previously distributed by the quali- fied electing fund. (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), (2) any amount excluded from gross income under subsection (c) shall be treated in the same manner as amounts excluded from gross income under section 959, and (3) a domestic corporation which owns (or is treated under section 1298(a) as owning) stock of a qualified electing fund shall be treated in the same manner as a United States share- holder of a controlled foreign corporation (and such qualified electing fund shall be treated in the same manner as such controlled foreign corporation) if such domestic corporation meets the stock ownership requirements of subsection (a) or (b) of section 902 (as in effect before its repeal) with respect to such quali- fied electing fund. (g) Other special rules (1) Exception for certain income For purposes of determining the amount in- cluded in the gross income of any person under this section, the ordinary earnings and net capital gain of a qualified electing fund shall not include any item of income received by such fund if— (A) such fund is a controlled foreign cor- poration (as defined in section 957(a)) and such person is a United States shareholder (as defined in section 951(b)) in such fund, and (B) such person establishes to the satisfac- tion of the Secretary that— (i) such income was subject to an effec- tive rate of income tax imposed by a for- eign country greater than 90 percent of the maximum rate of tax specified in section 11, or (ii) such income is— (I) from sources within the United States, (II) effectively connected with the con- duct by the qualified electing fund of a trade or business in the United States, and (III) not exempt from taxation (or sub- ject to a reduced rate of tax) pursuant to a treaty obligation of the United States. (2) Prevention of double inclusion The Secretary shall prescribe such adjust- ment to the provisions of this section as may be necessary to prevent the same item of in- come of a qualified electing fund from being included in the gross income of a United States person more than once. (Added Pub. L. 99–514, title XII, § 1235(a), Oct. 22, 1986, 100 Stat. 2569; amended Pub. L. 100–647, title I, § 1012(p)(15), (18), (23), (32), Nov. 10, 1988, 102 Stat. 3518, 3519, 3521; Pub. L. 103–66, title XIII, § 13231(c)(3), Aug. 10, 1993, 107 Stat. 498; Pub. L. 105–34, title XI, § 1122(d)(3), Aug. 5, 1997, 111 Stat. 977; Pub. L. 115–97, title I, § 14301(c)(35), Dec. 22, 2017, 131 Stat. 2224.) Editorial Notes REFERENCES IN TEXT Section 902 (as in effect before its repeal), referred to in subsec. (f)(3), means section 902 of this title as in ef- fect before its repeal by Pub. L. 115–97, title I, § 14301(a), Dec. 22, 2017, 131 Stat. 2221. AMENDMENTS 2017—Subsec. (f)(3). Pub. L. 115–97 added par. (3). 1997—Subsecs. (a)(1), (d). Pub. L. 105–34 substituted ‘‘section 1298(a)’’ for ‘‘section 1297(a)’’. 1993—Subsec. (c). Pub. L. 103–66 inserted at end ‘‘If the passive foreign investment company is a controlled foreign corporation (as defined in section 957(a)), the preceding sentence shall not apply to any United States shareholder (as defined in section 951(b)) in such corporation, and, in applying section 959 to any such shareholder, any inclusion under this section shall be treated as an inclusion under section 951(a)(1)(A).’’ 1988—Subsec. (b). Pub. L. 100–647, § 1012(p)(15), inserted at end ‘‘To the extent provided in regulations, if the fund establishes to the satisfaction of the Secretary that it uses a shorter period than the taxable year to determine shareholders’ interests in the earnings of such fund, pro rata shares may be determined by using such shorter period.’’ Subsec. (c). Pub. L. 100–647, § 1012(p)(23), inserted ‘‘, for purposes of this chapter,’’ after ‘‘shall be treat- ed’’, and ‘‘; except that such distribution shall imme- diately reduce earnings and profits’’ after ‘‘is not a div- idend’’. Subsec. (e)(3). Pub. L. 100–647, § 1012(p)(18), added par. (3). Subsec. (g). Pub. L. 100–647, § 1012(p)(32), added subsec. (g). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, Page 2412 TITLE 26—INTERNAL REVENUE CODE § 1294 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Amendment by Pub. L. 105–34 applicable to taxable years of United States persons beginning after Dec. 31, 1997, and to taxable years of foreign corporations end- ing with or within such taxable years of United States persons, see section 1124 of Pub. L. 105–34, set out as a note under section 532 of this title. EFFECTIVE DATE OF 1993 AMENDMENT Amendment by Pub. L. 103–66 applicable to taxable years of foreign corporations beginning after Sept. 30, 1993, and to taxable years of United States shareholders in which or with which such taxable years of foreign 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. § 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 sub- ject to the limitations provided in this sec- tion. (2) Election not permitted where amounts oth- erwise includible under section 951 The taxpayer may not make an election under paragraph (1) with respect to the undis- tributed PFIC earnings tax liability attrib- utable to a qualified electing fund for the tax- able year if any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year. (b) 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 in- come 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 sec- tion 1293(c), then the extension under sub- section (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 re- gard to extensions) for filing the return of tax for such taxable year. (B) Ordering rule For purposes of subparagraph (A), a dis- tribution shall be treated as made from the most recently accumulated earnings and profits. (2) Transfers, etc. If— (A) stock in a passive foreign investment company is transferred during the taxable year, or (B) a passive foreign investment company ceases to be a qualified electing fund, all extensions under subsection (a) for pay- ment of undistributed PFIC earnings tax li- ability attributable to such stock (or, in the case of such a cessation, attributable to any stock in such company) which had not expired before the date of such transfer or cessation shall expire on the last date prescribed by law (determined without regard to extensions) for filing the return of tax for the taxable year in which such transfer or cessation occurs. To the extent provided in regulations, the pre- ceding 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 trans- action shall succeed to the treatment under this section of the transferor. (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.