26 USC 1298 - Special rules

U.S Code last checked for updates: Nov 23, 2024

§ 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 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

(B)

50-percent limitation not to apply to PFIC

(3)

Partnerships, etc.

(4)

Options

(5)

Successive application

(b)

Other special rules

For purposes of this part—

(1)

Time for determination

(2)

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

(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

(6)

Dispositions

(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

(8)

Treatment of certain subpart F inclusions

(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

(2)

Amount taken into account

(A)

In general

(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

(2)

Certain licensed intangibles

(A)

In general

(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

(f)

Reporting requirement

(g)

Regulations

(Added Pub. L. 99–514, title XII, § 1235(a), Oct. 22, 1986, 100 Stat. 2573, § 1297; amended Pub. L. 100–647, title I, § 1012(p)(10), (17), (20), (22), (24), (35), (36), Nov. 10, 1988, 102 Stat. 3517–3519, 3522; Pub. L. 101–239, title VII, § 7811(i)(4), Dec. 19, 1989, 103 Stat. 2410; Pub. L. 103–66, title XIII, § 13231(d)(2), (4), Aug. 10, 1993, 107 Stat. 499; Pub. L. 104–188, title I, §§ 1501(b)(10), (11), 1703(i)(5), (6), Aug. 20, 1996, 110 Stat. 1826, 1876; renumbered § 1298 and amended Pub. L. 105–34, title XI, § 1122(a), (e), Aug. 5, 1997, 111 Stat. 972, 977; Pub. L. 105–206, title VI, § 6011(b)(2), July 22, 1998, 112 Stat. 818; Pub. L. 110–172, § 11(a)(24)(C), (f)(2), Dec. 29, 2007, 121 Stat. 2487, 2489; Pub. L. 111–147, title V, § 521(a), Mar. 18, 2010, 124 Stat. 112; Pub. L. 115–141, div. U, title IV, § 401(a)(184)–(186), (d)(1)(D)(viii)(III), Mar. 23, 2018, 132 Stat. 1193, 1207.)

cite as: 26 USC 1298