Attribution of ownership
Attribution to United States persons
Corporations
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.
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.
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.
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.
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.
Other special rules
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).
Certain corporations not treated as PFIC’s during start-up year
Certain corporations changing businesses
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.
Application of part where stock held by other entity
In general
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).
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.
Treatment of certain foreign corporations owning stock in 25-percent owned domestic corporation
In general
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.
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.
Treatment of stock held by pooled income fund
Treatment of certain leased property
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.
Amount taken into account
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.
Present value
Exceptions
Special rules for certain intangibles
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.
Certain licensed intangibles
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.
Exceptions
Controlled foreign corporation
For purposes of this subsection, the term “controlled foreign corporation” has the meaning given such term by section 957(a).
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.
Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part.
Pub. L. 99–514, title XII, § 1235(a)100 Stat. 2573Pub. L. 100–647, title I, § 1012(p)(10)102 Stat. 3517–3519Pub. L. 101–239, title VII, § 7811(i)(4)103 Stat. 2410Pub. L. 103–66, title XIII, § 13231(d)(2)107 Stat. 499Pub. L. 104–188, title I110 Stat. 1826Pub. L. 105–34, title XI, § 1122(a)111 Stat. 972Pub. L. 105–206, title VI, § 6011(b)(2)112 Stat. 818Pub. L. 110–172, § 11(a)(24)(C)121 Stat. 2487Pub. L. 111–147, title V, § 521(a)124 Stat. 112Pub. L. 115–141, div. U, title IV, § 401(a)(184)132 Stat. 1193(Added , , , § 1297; amended , (17), (20), (22), (24), (35), (36), , , 3522; , , ; , (4), , ; , §§ 1501(b)(10), (11), 1703(i)(5), (6), , , 1876; renumbered § 1298 and amended , (e), , , 977; , , ; , (f)(2), , , 2489; , , ; –(186), (d)(1)(D)(viii)(III), , , 1207.)
Editorial Notes
Amendments
Pub. L. 115–141, § 401(a)(184)2018—Subsec. (b)(5)(B). , substituted “section 951(c)” for “section 951(f)”.
Pub. L. 115–141, § 401(a)(185)Subsec. (d)(2)(A). , substituted “section 1297(a)(2)” for “section 1296(a)(2)”.
Pub. L. 115–141, § 401(d)(1)(D)(viii)(III)Subsec. (e)(2)(A). , substituted “section 367(d)(4)” for “section 936(h)(3)(B)”.
Pub. L. 115–141, § 401(a)(186)Subsec. (e)(2)(B)(ii). , substituted “provisions” for “provisons”.
Pub. L. 111–1472010—Subsecs. (f), (g). added subsec. (f) and redesignated former subsec. (f) as (g).
Pub. L. 110–172, § 11(a)(24)(C)2007—Subsec. (a)(2)(B). , substituted “Section 1297(d)” for “Section 1297(e)”.
Pub. L. 110–172, § 11(f)(2)Subsec. (b)(7) to (9). , 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 , if such company is a passive foreign investment company for such taxable year.”
Pub. L. 105–2061998—Subsec. (a)(2)(B). 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.”
Pub. L. 105–34, § 1122(a)section 1297 of this title1997—, renumbered as this section.
Pub. L. 105–34, § 1122(e)Subsec. (b)(1). , inserted “(determined without regard to the preceding sentence)” after “investment company” in last sentence.
Pub. L. 104–188, § 1501(b)(10)1996—Subsec. (b)(9). , substituted “section 951(a)(1)(B)” for “subparagraph (B) or (C) of section 951(a)(1)”.
Pub. L. 104–188, § 1703(i)(5)(B)Subsec. (d)(2). , in heading substituted “Amount taken into account” for “Determination of adjusted basis”.
Pub. L. 104–188, § 1703(i)(5)(A)Subsec. (d)(2)(A). , substituted “The amount taken into account under section 1296(a)(2) with respect to any asset” for “The adjusted basis of any asset”.
Pub. L. 104–188, § 1501(b)(11)Subsec. (d)(3)(B). , struck out “or section 956A” after “this part”.
Pub. L. 104–188, § 1703(i)(6)Subsec. (e). , inserted “For purposes of this part—” after heading.
Pub. L. 104–188, § 1501(b)(11)Subsec. (e)(2)(B)(ii). , struck out “or section 956A” after “this part”.
Pub. L. 103–66, § 13231(d)(2)1993—Subsec. (b)(9). , added par. (9).
Pub. L. 103–66, § 13231(d)(4)Subsecs. (d) to (f). , added subsecs. (d) and (e) and redesignated former subsec. (d) as (f).
Pub. L. 101–239, § 7811(i)(4)(A)1989—Subsec. (b)(5). , substituted “where stock held” for “where held” in heading.
Pub. L. 101–239, § 7811(i)(4)(C)Subsec. (b)(5)(A). , substituted “treated as a disposition by, or distribution to” for “treated as a disposition to” in concluding provisions.
Pub. L. 101–239, § 7811(i)(4)(B)Subsec. (b)(5)(A)(ii). , substituted “any distribution of” for “any disposition of”.
Pub. L. 100–647, § 1012(p)(10)(A)1988—Subsec. (a)(4). , added par. (4). Former par. (4) redesignated (5).
Pub. L. 100–647, § 1012(p)(10)Subsec. (a)(5). , redesignated par. (4) as (5) and substituted “paragraph (2), (3), or (4)” for “paragraph (2) or (3)”.
Pub. L. 100–647, § 1012(p)(36)Subsec. (b)(1). , substituted “investment company which” for “investment corporation which”.
Pub. L. 100–647, § 1012(p)(22)Subsec. (b)(3)(A). , 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,”.
Pub. L. 100–647, § 1012(p)(17)Subsec. (b)(5). , 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.”
Pub. L. 100–647, § 1012(p)(20)Subsec. (b)(6). , substituted “Except as provided in regulations, if a” for “If a”.
Pub. L. 100–647, § 1012(p)(24)Subsec. (b)(8). , added par. (8).
Pub. L. 100–647, § 1012(p)(35)Subsecs. (c), (d). , added subsec. (c) and redesignated former subsec. (c) as (d).
Statutory Notes and Related Subsidiaries
Effective Date of 2007 Amendment
section 11(f)(2) of Pub. L. 110–172Pub. L. 108–357section 11(f)(4) of Pub. L. 110–172section 904 of this titleAmendment by effective as if included in the provision of the American Jobs Creation Act of 2004, , to which such amendment relates, see , set out as a note under .
Effective Date of 1998 Amendment
Pub. L. 105–206Pub. L. 105–34section 6024 of Pub. L. 105–206section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, , to which such amendment relates, see , set out as a note under .
Effective Date of 1997 Amendment
Pub. L. 105–34section 1124 of Pub. L. 105–34section 532 of this titleAmendment by applicable to taxable years of United States persons beginning after , and to taxable years of foreign corporations ending with or within such taxable years of United States persons, see , set out as a note under .
Effective Date of 1996 Amendment
Pub. L. 104–188section 1501(d) of Pub. L. 104–188section 904 of this titleAmendment by section 1501(b)(10), (11) of applicable to taxable years of foreign corporations beginning after , and to taxable years of United States shareholders within which or with which such taxable years of foreign corporations end, see , set out as a note under .
Pub. L. 104–188Pub. L. 103–66oPub. L. 104–188section 39 of this titleAmendment by section 1703(i)(5), (6) of effective as if included in the provision of the Revenue Reconciliation Act of 1993, , §§ 13001–13444, to which such amendment relates, see section 1703() of , set out as a note under .
Effective Date of 1993 Amendment
Pub. L. 103–66section 13231(e) of Pub. L. 103–66section 951 of this titleAmendment by applicable to taxable years of foreign corporations beginning after , and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see , set out as a note under .
Effective Date of 1989 Amendment
Pub. L. 101–239Pub. L. 100–647section 7817 of Pub. L. 101–239section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, , to which such amendment relates, see , set out as a note under .
Effective Date of 1988 Amendment
Pub. L. 100–647Pub. L. 99–514section 1019(a) of Pub. L. 100–647section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .
Effective Date
section 1235(h) of Pub. L. 99–514section 1291 of this titleSection applicable to taxable years of foreign corporations beginning after , see , set out as a note under .
Savings Provision
section 401(d)(1)(D)(viii)(III) of Pub. L. 115–141section 401(e) of Pub. L. 115–141section 23 of this titleFor provisions that nothing in amendment by be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see , set out as a note under .