26 U.S.C. § 1298 — Special rules

(a) Attribution of ownership. These rules apply to the extent they treat passive foreign investment company^* stock^* as owned by a United States person^*. Unless regulations provide otherwise, they do not treat stock owned or treated as owned by a United States person as owned by another person. (2) If at least 50 percent by value of a corporation's stock is owned directly or indirectly by or for a person, that person is treated as owning the corporation's stock in proportion to the value of the person's stock. For deciding whether a PFIC shareholder^* owns stock held by the PFIC, the 50-percent limit does not apply, and section 1297(d) is disregarded. (3) Stock owned by or for a partnership^*, estate, or trust is treated as proportionately owned by its partners or beneficiaries. (4) As regulations provide, a person with an option to acquire stock is treated as owning it; options on options and series of options are treated as options on the stock. (5) Stock attributed under paragraphs (2), (3), or (4) is treated as actually owned for applying those paragraphs. (b) Other special rules. (1) Stock is PFIC stock if the corporation^* or a predecessor was a PFIC that was not a qualified electing fund^* at any time during the holding period, unless the taxpayer^* elects gain recognition on the last day of the last PFIC year under rules like section 1291(d)(2). (2) A corporation is not a PFIC in its first gross-income year if no predecessor was a PFIC, the taxpayer satisfies the Secretary^* that it will not be a PFIC in either of the next two years, and it is not a PFIC in either year. (3) A corporation is not a PFIC for a year if neither it nor a predecessor was previously a PFIC, nearly all passive income came from selling active businesses, and it will not be a PFIC in either of the next two years and is not a PFIC in those years. (4) Regulations may treat separate stock classes or other interests as separate corporations. (5) Under regulations, a disposition ending a United States person's treated ownership, or a property distribution for attributed stock, is treated as that person's disposition or distribution. Rules like section 959(b) apply to those amounts and to section 1293(a) inclusions, or amounts that would have been included but for section 951(c). (6) Unless regulations provide otherwise, pledging PFIC stock as loan security is treated as disposing of it. (7) If a foreign corporation subject to section 531 tax owns at least 25 percent of a domestic corporation, qualified stock of that domestic corporation is treated as an asset that does not produce and is not held to produce passive income, and income from it is not passive. “Qualified stock” is stock in a domestic C corporation^* that is not a regulated investment company or real estate investment trust^*. (8) A section 951(a)(1)(B) inclusion is treated as a distribution for the stock. (c) Pooled income funds. If a pooled income fund owns or is treated as owning PFIC stock and its governing instrument does not allow disposition gain to be allocated to income, section 1291 does not apply to the gain if section 642(c)(3) would allow a deduction; section 1293 does not apply to the stock; and section 1291(d) does not apply in deciding whether section 1291 applies to a distribution. (d) Leased property. (1) Tangible personal property leased by a foreign corporation for at least 12 months is treated as an asset it holds. (2) The amount counted under section 1297(a)(2) is the unamortized portion of the present value of lease payments, determined under regulations at the lease's beginning using, unless regulations provide otherwise, the applicable Federal rate under section 1274(d), with the lease term substituted for the debt term and section 1274(d)(2) and (3) disregarded. (3) This does not apply if the lessor is a related person or avoiding this part was a principal leasing purpose. (e) Intangibles. (1) A controlled foreign corporation's adjusted total-asset basis increases by research or experimental expenditures under section 174 paid or incurred in the year and two preceding years, reduced by reimbursements. (2) For section 367(d)(4) intangible property licensed to and used in its active business, it increases by 300 percent of license payments during the year. This does not apply to related foreign-person payments or a license entered mainly to avoid this part. (3) “Controlled foreign corporation” has section 957(a)'s meaning. (f) Reporting. Unless the Secretary provides otherwise, each United States person who is a PFIC shareholder must file an annual report with required information. (g) Regulations. The Secretary must prescribe regulations needed or appropriate to carry out this part.