1.1247-1—Election by foreign investment companies to distribute income currently.
(a) Election by foreign investment company—
(1) In general.
If a registered foreign investment company (as defined in paragraph (b) of this section) elects, on or before December 31, 1962, with respect to each of its taxable years beginning after December 31, 1962, to comply with the requirements of subparagraph (2) of this paragraph, then section 1246 (relating to gain on foreign investment company stock) shall not apply with respect to a qualified shareholder (as defined in paragraph (b) of § 1.1247-3) of such company who disposes of his stock during any taxable year of the company to which such election applies. See section 1247(a)(1).
(2) Requirements.
A registered foreign investment company which makes an election under section 1247(a) shall, with respect to each of its taxable years beginning after December 31, 1962, comply with the following requirements:
(i)
Under section 1247(a)(1)(A), the company shall distribute to its shareholders, during the taxable year, 90 percent or more of what its taxable income would be for such taxable year if it were a domestic corporation. To the extent elected by the company under section 1247(a)(2)(B), a distribution of taxable income made not later than 2 months and 15 days after the close of the taxable year shall be treated as distributed during such taxable year. For rules relating to computation of taxable income for a taxable year and distributions of such taxable income, see § 1.1247-2.
(ii)
Under section 1247(a)(1)(B), the company shall designate to each shareholder the amount of his pro rata share of the excess of the net long-term capital gain over the net short-term capital loss for the taxable year and the amount thereof which is being distributed. For the manner of designating and the computation of such amounts, see § 1.1247-3.
(iii)
Under section 1247(a)(1)(C), the company shall provide the information and maintain the records required by § 1.1247-5.
(b) Definition of registered foreign investment company.
The term registered foreign investment company means a foreign corporation which is registered within the time specified in this paragraph under the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), either as a management company or as a unit investment trust. Under such Act, a company is deemed registered upon receipt by the Securities and Exchange Commission of Form N-8A entitled Notification of Registration Filed Pursuant to Section 8(a) of the Investment Company Act of 1940. See section 8(a) of such Act (15 U.S.C. 80a-8(a)) and 17 CFR 274.10. A company which computes its income on the basis of a calendar year must have registered on or before December 31, 1962, and a company which computes its income on the basis of a fiscal year must have registered on or before the last day of its fiscal year beginning in 1962 and ending in 1963.
(c) Time and manner of making election—
(1) In general.
The election provided by paragraph (a) of this section must have been made on or before December 31, 1962, by means of a letter addressed to the Director of Interna- Service, Washington, DC 20225, which clearly stated that the company elects to comply with the provisions of section 1247. The letter must have been signed by an officer of the foreign investment company who was a resident of the United States and who was duly authorized to act on behalf of the company.
(2) Information furnished.
The following information must have been submitted in connection with the election:
(i)
The name, address, and employer identification number, if any, and the taxable year of the company;
(iv)
The date of filing with the Securities and Exchange Commission, and the file number, of Form N-8A;
(v)
The names and addresses of all of the company's directors and officers and of any custodian or agent of the company located in the United States; and
(vi)
The name and address of the person (or persons) in the United States having custody of the books of account, records, and other documents of the company, and the location of such books, records, and other documents if different from such address.
(3) Time information furnished.
(i)
If a foreign investment company was registered with the Securities and Exchange Commission on the date of election, all the information required by subparagraph (2) of this paragraph must have been submitted with the election.
(ii)
If a foreign investment company made its election before it was so registered, the information required by subparagraph (2) (i), (ii), and (iii) of this paragraph must have been submitted with the election and the information required by subparagraph (2) (iv), (v), and (vi) of this paragraph must have been submitted within 60 days following receipt by the Securities and Exchange Commission of Form N-8A.
(d) Termination of election—
(1) General.
Section 1247(b) provides that the election of a foreign investment company under section 1247(a) shall permanently terminate as of the close of the taxable year preceding its first taxable year in which any of the following occurs:
(i)
The company fails to comply with the provisions of section 1247(a)(1) (A), (B), or (C), unless it is shown that such failure is due to reasonable cause and not due to willful neglect;
(iii)
The company ceases to be a registered foreign investment company which is described in paragraph (b) of this section. A company ceases to be a registered company, for example, as of the time the Securities and Exchange Commission revokes its order permitting registration of the company.
(2) Reasonable cause.
Whether a failure by a foreign investment company to comply with the provisions of section 1247(a)(1) (A), (B), or (C) is due to reasonable cause and not due to willful neglect depends on whether the company exercised ordinary business care and prudence. For example, if in determining its taxable income under section 1247(a) the company relied in good faith upon estimates and opinions of independent certified public accountants or other experts which are also used for purposes of its financial statements filed with the Securities and Exchange Commission under the Investment Company Act of 1940, such reliance would constitute reasonable cause for purposes of this paragraph. In such a case, the company's election under section 1247(a) for the taxable year would not be terminated nor would the company be required to make an additional distribution for such taxable year in order to comply with the provisions of section 1247(a)(1)(A).