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USC Title 26 enacted through 2008

§ 1297. Passive foreign investment company

 
(a)
In general
 
For purposes of this part, except as otherwise provided in this subpart, the term "passive foreign investment company" means any foreign corporation if -
 
(1)
75 percent or more of the gross income of such corporation for the taxable year is passive income, or
 
(2)
the average percentage of assets (as determined in accordance with subsection (e)) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.
 
(b)
Passive income
 
For purposes of this section -
 
(1)
In general
 
Except as provided in paragraph (2), the term "passive income" means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c).
 
(2)
Exceptions
 
Except as provided in regulations, the term "passive income" does not include any income -
 
(A)
derived in the active conduct of a banking business by an institution licensed to do business as a bank in the United States (or, to the extent provided in regulations, by any other corporation),
 
(B)
derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business and which would be subject to tax under subchapter L if it were a domestic corporation,
 
(C)
which is interest, a dividend, or a rent or royalty, which is received or accrued from a related person (within the meaning of section 954(d)(3)) to the extent such amount is properly allocable (under regulations prescribed by the Secretary) to income of such related person which is not passive income, or
 
(D)
which is export trade income of an export trade corporation (as defined in section 971).
 
For purposes of subparagraph (C), the term "related person" has the meaning given such term by section 954(d)(3) determined by substituting "foreign corporation" for "controlled foreign corporation" each place it appears in section 954(d)(3).
 
(c)
Look-thru in the case of 25-percent owned corporations
 
If a foreign corporation owns (directly or indirectly) at least 25 percent (by value) of the stock of another corporation, for purposes of determining whether such foreign corporation is a passive foreign investment company, such foreign corporation shall be treated as if it -
 
(1)
held its proportionate share of the assets of such other corporation, and
 
(2)
received directly its proportionate share of the income of such other corporation.
 
(d)
Exception for United States shareholders of controlled foreign corporations
 
(1)
In general
 
For purposes of this part, a corporation shall not be treated with respect to a shareholder as a passive foreign investment company during the qualified portion of such shareholder's holding period with respect to stock in such corporation.
 
(2)
Qualified portion
 
For purposes of this subsection, the term "qualified portion" means the portion of the shareholder's holding period -
 
(A)
which is after December 31, 1997, and
 
(B)
during which the shareholder is a United States shareholder (as defined in section 951(b)) of the corporation and the corporation is a controlled foreign corporation.
 
(3)
New holding period if qualified portion ends
 
(A)
In general
 
Except as provided in subparagraph (B), if the qualified portion of a shareholder's holding period with respect to any stock ends after December 31, 1997, solely for purposes of this part, the shareholder's holding period with respect to such stock shall be treated as beginning as of the first day following such period.
 
(B)
Exception
 
Subparagraph (A) shall not apply if such stock was, with respect to such shareholder, stock in a passive foreign investment company at any time before the qualified portion of the shareholder's holding period with respect to such stock and no election under section 1298(b)(1) is made.
 
(4)
Treatment of holders of options
 
Paragraph (1) shall not apply to stock treated as owned by a person by reason of section 1298(a)(4) (relating to the treatment of a person that has an option to acquire stock as owning such stock) unless such person establishes that such stock is owned (within the meaning of section 958(a)) by a United States shareholder (as defined in section 951(b)) who is not exempt from tax under this chapter.
 
(e)
Methods for measuring assets
 
(1)
Determination using value
 
The determination under subsection (a)(2) shall be made on the basis of the value of the assets of a foreign corporation if -
 
(A)
such corporation is a publicly traded corporation for the taxable year, or
 
(B)
paragraph (2) does not apply to such corporation for the taxable year.
 
(2)
Determination using adjusted bases
 
The determination under subsection (a)(2) shall be based on the adjusted bases (as determined for the purposes of computing earnings and profits) of the assets of a foreign corporation if such corporation is not described in paragraph (1)(A) and such corporation -
 
(A)
is a controlled foreign corporation, or
 
(B)
elects the application of this paragraph.
 
An election under subparagraph (B), once made, may be revoked only with the consent of the Secretary.
 
(3)
Publicly traded corporation
 
For purposes of this subsection, a foreign corporation shall be treated as a publicly traded corporation if the stock in the corporation is regularly traded on -
 
(A)
a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or
 
(B)
any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this subsection.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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