§ 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—
(b)
Passive income
For purposes of this section—
(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
(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—
(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—
(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.
(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—
(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—
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—