§ 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—
(b)
Pro rata share
The pro rata share referred to in subsection (a) in the case of any shareholder is the amount which would have been distributed with respect to the shareholder’s stock if, on each day during the taxable year of the fund, the fund had distributed to each shareholder a pro rata share of that day’s ratable share of the fund’s ordinary earnings and net capital gain for such year. To the extent provided in regulations, if the fund establishes to the satisfaction of the Secretary that it uses a shorter period than the taxable year to determine shareholders’ interests in the earnings of such fund, pro rata shares may be determined by using such shorter period.
(c)
Previously taxed amounts distributed tax free
If the taxpayer establishes to the satisfaction of the Secretary that any amount distributed by a passive foreign investment company is paid out of earnings and profits of the company which were included under subsection (a) in the income of any United States person, such amount shall be treated, for purposes of this chapter, as a distribution which is not a dividend; except that such distribution shall immediately reduce earnings and profits. If the passive foreign investment company is a controlled foreign corporation (as defined in section
957
(a)), the preceding sentence shall not apply to any United States shareholder (as defined in section
951
(b)) in such corporation, and, in applying section
959 to any such shareholder, any inclusion under this section shall be treated as an inclusion under section
951
(a)(1)(A).
(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
(e)
Ordinary earnings
For purposes of this section—
(1)
Ordinary earnings
The term “ordinary earnings” means the excess of the earnings and profits of the qualified electing fund for the taxable year over its net capital gain for such taxable year.
(2)
Limitation on net capital gain
A qualified electing fund’s net capital gain for any taxable year shall not exceed its earnings and profits for such taxable year.
(3)
Determination of earnings and profits
The earnings and profits of any qualified electing fund shall be determined without regard to paragraphs (4), (5), and (6) of section
312
(n). Under regulations, the preceding sentence shall not apply to the extent it would increase earnings and profits by an amount which was previously distributed by the qualified electing fund.
(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), and
(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.
(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