26 USC 1293 - Current taxation of income from qualified electing funds

U.S Code last checked for updates: Oct 17, 2024

§ 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 shareholder’s pro rata share of the net capital gain of such fund for such year.

(2)

Year of inclusion

(b)

Pro rata share

(c)

Previously taxed amounts distributed tax free

(d)

Basis adjustments

The basis of the taxpayer’s stock in a passive foreign investment company shall be—

(1)

increased by any amount which is included 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 includible 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

(2)

Limitation on net capital gain

(3)

Determination of earnings and profits

(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 shareholder 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 qualified electing fund.

(g)

Other special rules

(1)

Exception for certain income

For purposes of determining the amount included 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 corporation (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 satisfaction of the Secretary that—

(i)

such income was subject to an effective rate of income tax imposed by a foreign 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 conduct by the qualified electing fund of a trade or business in the United States, and

(III)

not exempt from taxation (or subject to a reduced rate of tax) pursuant to a treaty obligation of the United States.

(2)

Prevention of double inclusion

(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.)

cite as: 26 USC 1293