If a United States person receives an excess distribution in respect of stock in a passive foreign investment company, then-
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.
For purposes of this section-
The taxpayer's holding period shall be determined under section 1223; except that-
The term "current year" means the taxable year in which the excess distribution or disposition occurs.
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.
For purposes of this subsection-
The term "total excess distribution" means the excess (if any) of-
For purposes of clause (ii), any excess distribution received during such 3-year period shall be taken into account only to the extent it was included in gross income under subsection (a)(1)(B).
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.
Under regulations prescribed by the Secretary-
For purposes of this section-
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-
Any increase in the tax imposed by this chapter for the current year under subsection (a) to the extent attributable to the amount referred to in subparagraph (B) shall be treated as interest paid under section 6601 on the due date for the current year.
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.
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-
by using the rates and method applicable under section 6621 for underpayments of tax for such period.
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.
This section shall not apply with respect to any distribution paid by a passive foreign investment company, or any disposition of stock in a passive foreign investment company, if such company is a qualified electing fund with respect to the taxpayer for each of its taxable years-
Except as provided in section 1296(j), this section also shall not apply if an election under section 1296(k) is in effect for the taxpayer's taxable year. In the case of stock which is marked to market under section 475 or any other provision of this chapter, this section shall not apply, except that rules similar to the rules of section 1296(j) shall apply.
If-
the taxpayer may elect to recognize gain as if he sold such stock on such first day for such fair market value.
If-
the taxpayer may elect to include in gross income as a dividend received on such first day an amount equal to the portion of the post-1986 earnings and profits of such company attributable (under regulations prescribed by the Secretary) to the stock in such company held by the taxpayer on such first day. The amount treated as a dividend under the preceding sentence shall be treated as an excess distribution and shall be allocated under subsection (a)(1)(A) only to days during periods taken into account in determining the post-1986 earnings and profits so attributable.
For purposes of clause (i), the term "post-1986 earnings and profits" means earnings and profits which were accumulated in taxable years of such company beginning after December 31, 1986, and during the period or periods the stock was held by the taxpayer while the company was a passive foreign investment company.
For purposes of section 959(e), any amount included in gross income under this subparagraph shall be treated as included in gross income under section 1248(a).
In the case of any stock to which subparagraph (A) or (B) applies-
Except to the extent inconsistent with the regulations prescribed under subsection (f), rules similar to the rules of subsections (c), (d), and (e) of section 1246 (as in effect on the day before the date of the enactment of the American Jobs Creation Act of 2004) shall apply for purposes of this section; except that-
To the extent provided in regulations, in the case of any transfer of stock in a passive foreign investment company where (but for this subsection) there is not full recognition of gain, the excess (if any) of-
shall be treated as gain from the sale or exchange of such stock and shall be recognized notwithstanding any provision of law. Proper adjustment shall be made to the basis of any such stock for gain recognized under the preceding sentence.
If there are creditable foreign taxes with respect to any distribution in respect of stock in a passive foreign investment company-
For purposes of this subsection-
The term "creditable foreign taxes" means, with respect to any distribution, any withholding tax imposed with respect to such distribution, but only if the taxpayer chooses the benefits of section 901 and such taxes are creditable under section 901 (determined without regard to paragraph (1)(C)(ii)).
The term "excess distribution taxes" means, with respect to any distribution, the portion of the creditable foreign taxes with respect to such distribution which is attributable (on a pro rata basis) to the portion of such distribution which is an excess distribution.
The rules of this subsection also shall apply in the case of any gain which but for this section would be includible in gross income as a dividend under section 1248.
26 U.S.C. § 1291
EDITORIAL NOTES
REFERENCES IN TEXTThe date of the enactment of the American Jobs Creation Act of 2004, referred to in subsec. (e), is the date of enactment of Pub. L. 108-357, which was approved Oct. 22, 2004.
AMENDMENTS2018-Subsec. (e). Pub. L. 115-141 substituted "subsections (c), (d), and (e)" for "subsections (c) and (d) (e)," in introductory provisions.2017-Subsec. (g)(2)(A). Pub. L. 115-97 substituted "any distribution, any withholding tax imposed with respect to such distribution, but only if" for "any distribution- "(i) any foreign taxes deemed paid under section 902 with respect to such distribution, and"(ii) any withholding tax imposed with respect to such distribution,but only if". 2010-Subsec. (e). Pub. L. 111-312, which directed that subsec. (e) be amended to read as if amendment by Pub. L. 107-16, §542(e)(5)(B), had never been enacted, was executed by inserting "(e)," after "subsections (c) and (d)" and substituting "; except that-" and pars. (1) and (2) for the period at end. See 2001 Amendment note below. Pub. L. 111-147 substituted "and (d)" for ", (d), and (f)". 2004-Subsec. (b)(3)(F). Pub. L. 108-357, §413(c) (24)(A), substituted "959(a)" for "551(d), 959(a),". Subsec. (e). Pub. L. 108-357, §413(c) (24)(B), inserted "(as in effect on the day before the date of the enactment of the American Jobs Creation Act of 2004)" after "section 1246" in introductory provisions.2001-Subsec. (e). Pub. L. 107-16, §542(e)(5)(B), struck out "(e)," after "subsections (c), (d)," and substituted period at end for "; 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 a nonresident alien at all times during his holding period in the stock." 1998-Subsec. (d)(1). Pub. L. 105-206 inserted at end "In the case of stock which is marked to market under section 475 or any other provision of this chapter, this section shall not apply, except that rules similar to the rules of section 1296(j) shall apply." 1997-Subsec. (a)(3)(A). Pub. L. 105-34, §1122(b)(3), amended heading and text of subpar. (A) generally. Prior to amendment, text read as follows: "The taxpayer's holding period shall be determined under section 1223; except that, for purposes of applying this section to an excess distribution, such holding period shall be treated as ending on the date of such distribution."Subsec. (d). Pub. L. 105-34, §1122(b)(2), substituted "subparts B and C" for "subpart B" in heading.Subsec. (d)(1). Pub. L. 105-34, §1122(b)(1), inserted concluding provisions.1988-Subsec. (a)(1)(B)(ii). Pub. L. 100-647, §1012(p)(12), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: "any period in the taxpayer's holding period before the 1st day of the 1st taxable year of the company for which it was a passive foreign investment company (or, if later, January 1, 1987), and".Subsec. (a)(3)(A). Pub. L. 100-647, §1012(p)(14), substituted "for purposes of applying this section to" for "in the case of".Subsec. (a)(4), (5). Pub. L. 100-647, §1012(p)(7)(A), struck out par. (4) which related to coordination with section 904, and par. (5) which related to section 902 not applying. Subsec. (b)(2)(A). Pub. L. 100-647, §1012(p)(13), inserted at end "For purposes of clause (ii), any excess distribution received during such 3-year period shall be taken into account only to the extent it was included in gross income under subsection (a)(1)(B)."Subsec. (b)(3)(F). Pub. L. 100-647, §1012(p)(3), added subpar. (F).Subsec. (b)(3)(G). Pub. L. 100-647, §1012(p)(33), added subpar. (G). Subsec. (c)(1). Pub. L. 100-647, §1012(p)(31), inserted at end "Any increase in the tax imposed by this chapter for the current year under subsection (a) to the extent attributable to the amount referred to in subparagraph (B) shall be treated as interest paid under section 6601 on the due date for the current year."Subsec. (d)(1). Pub. L. 100-647, §6127(b)(1), inserted "with respect to the taxpayer" after "qualified electing fund".Pub. L. 100-647, §1012(p)(1), amended par. (1) generally. Prior to amendment, par. (1) read as follows: "This section shall not apply with respect to-"(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." Subsec. (d)(2)(A)(i). Pub. L. 100-647, §6127(b)(2), inserted "with respect to the taxpayer" after "qualified electing fund". Subsec. (d)(2)(B). Pub. L. 100-647, §1012(p)(28), added subpar. (B) and struck out former subpar. (B) which related to adjustments to basis of stock to which subpar. (A) applies.Subsec. (d)(2)(B)(i)(I). Pub. L. 100-647, §6127(b)(2), inserted "with respect to the taxpayer" after "qualified electing fund".Subsec. (d)(2)(C). Pub. L. 100-647, §1012(p)(28), added subpar. (C).Subsec. (e). Pub. L. 100-647, §1012(p)(6)(B), substituted "Except to the extent inconsistent with the regulations prescribed under subsection (f), rules similar".Subsec. (e)(2). Pub. L. 100-647, §1012(p)(9), struck out "not" before "a nonresident".Subsec. (f). Pub. L. 100-647, §1012(p)(6)(A), amended subsec. (f) generally. Prior to amendment, subsec. (f), "Nonrecognition provisions", read as follows: "To the extent provided in regulations, gain shall be recognized on any disposition of stock in a passive foreign investment company."Subsec. (g). Pub. L. 100-647, §1012(p)(7)(B), 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, 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, §521(c), Mar. 18, 2010, 124 Stat. 112, provided that: "The amendments made by this section [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 corporations 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 ending 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, 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.Amendment by section 6127(b) of Pub. L. 100-647 effective 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 DATEPub. 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 taxable years of foreign corporations beginning after December 31, 1986."
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- United States person
- The term "United States person" means-(A) a citizen or resident of the United States,(B) a domestic partnership,(C) a domestic corporation,(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and(E) any trust if-(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and(ii) one or more United States persons have the authority to control all substantial decisions of the trust.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- person
- The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
- shareholder
- The term "shareholder" includes a member in an association, joint-stock company, or insurance company.
- stock
- The term "stock" includes shares in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.