Generally, a U.S. person that owns stock in a PFIC, directly or indirectly, may make Election A to treat the PFIC as a QEF.

For more information on who may make the election, see Regulations section 1.1295-1(d).

Generally, a shareholder must make the election to be treated as a QEF by the due date, including extensions, for filing the shareholder's income tax return for the first taxable year to which the election will apply (the “election due date”). See Retroactive election below for exceptions. The foreign corporation will be treated as a QEF with respect to the shareholder for the taxable year in which the election is made and for each subsequent tax year of the foreign corporation ending with or within a taxable year of the shareholder for which the election is effective.

For rules relating to the invalidation, termination, or revocation of a section 1295 election, see Regulations section 1295-1(i). Also see Regulations section 1.1295-1(c)(2) for rules relating to the years to which a section 1295 election applies.

For the tax year in which the section 1295 election is made, the shareholder must do the following.

For each subsequent tax year in which the election applies and the corporation is treated as a QEF, the shareholder must:

A shareholder of a QEF may make Election B to extend the time for payment of the tax on its share of the undistributed earnings of the fund for the current tax year. If a U.S. partnership is a shareholder of a QEF, the election is made at the partner level.

Generally, this election must be made by the due date, including extensions, of the shareholder's tax return for the tax year for which the shareholder reports the income related to the deferred tax.

To make this election:

Generally, an election to mark to market PFIC stock may be made by:

For more information, see section 1296 and Regulations section 1.1296-1. See sections 1296(f) and (g) and Regulations sections 1.1296-1(e) and (h)(1)(ii) for information regarding stock owned through certain foreign entities.

This election must be made on or before the due date (including extensions) of the U.S. person's income tax return for the tax year in which the stock is marked to market. A section 1296 election by a CFC is made by its controlling shareholders. For more information, see Regulations section 1.1296-1(h)(1)(ii). Once made, the election applies to all subsequent tax years unless the election is revoked or terminated pursuant to Regulations section 1.1296-1(h)(3).

To make the election:

This is a deemed sale election under section 1291(d)(2)(A). This election may be made by a U.S. person that elects to treat a PFIC as a QEF for a foreign corporation's tax year following its first tax year as a PFIC included in the shareholder's holding period (an unpedigreed QEF). A shareholder making this election is deemed to have sold the PFIC stock as of the first day of the PFIC's first tax year as a QEF (the qualification date) for its fair market value.

For purposes of this election, the following apply.

This election must be made by the due date, including extensions, of the shareholder's original tax return (or by filing an amended return within 3 years of the due date of the original return) for the tax year that includes the qualification date.

To make this election:

For more information regarding making Election D, see Regulations section 1.1291-10.

This is a deemed dividend election under section 1291(d)(2)(B). This election may be made by a U.S. person that elects to treat a PFIC that is also a CFC as a QEF for the foreign corporation's tax year following its first tax year as a PFIC included in the shareholder's holding period (an unpedigreed QEF).

A shareholder making this election is treated as receiving a dividend equal to its pro rata share of the post-1986 earnings and profits (defined below) of the PFIC on the qualification date (defined under the instructions for Election D earlier). The deemed dividend is taxed as an excess distribution, allocated only to the days in the shareholder's holding period during which the foreign corporation qualified as a PFIC. For this purpose, the shareholder's holding period ends on the day before the qualification date.

For purposes of this election, the following apply.

This election must be made by the due date (including extensions) of the shareholder's original tax return (or by filing an amended return within 3 years of the due date of the original return) for the tax year that includes the qualification date.

To make this election:

For more information on making Election E, see Regulations section 1.1291-9.

This is a deemed sale election under section 1298(b)(1) and Regulations section 1.1297-3(b) or 1.1298-3(b). This election may be made by:

This election must be made by the due date of the shareholder’s original tax return (or by filing an amended return within 3 years of the due date, as extended under section 6081, of the original return) for the tax year that includes, as appropriate, either the termination date or qualification date. However see Form 8621-A (and Regulations sections 1.1297-3(e) and 1.1298-3(e)) if the 3-year period has expired.

To make this election:

This is a deemed dividend election under section 1298(b)(1) and Regulations section 1.1297-3(c). This election may be made by a shareholder that is a U.S. shareholder (as defined in section 951(b)) of a foreign corporation that is a CFC and a PFIC, but that is not treated as a PFIC with respect to the U.S. shareholder under section 1297(d).

A shareholder making this election is treated as receiving a dividend of its pro rata share of the post-1986 earnings and profits (defined later) of the Section 1297(e) PFIC on the CFC qualification date (defined later). The deemed dividend is taxed under section 1291 as an excess distribution, allocated only to the days in the shareholder’s holding period during which the foreign corporation qualified as a PFIC. For this purpose, the shareholder’s holding period ends on the day before the CFC qualification date. After the deemed dividend election, the shareholder’s stock is not treated as stock in a PFIC.

For purposes of this election, the following rules apply:

This election must be made by the due date of the shareholder’s original return (or by filing an amended return within 3 years of the due date, as extended under section 6081, of the original return) for the tax year that includes the first day on which the qualified portion of the shareholder’s holding period in the PFIC begins, as determined under section 1297(d). However see Form 8621-A (and Regulations section 1.1297-3(e)) if the 3-year period has expired.

To make this election, check box G in Part II and complete Part V, line 16. Also attach to Form 8621 the information specified below.

The shareholder must attach a statement to Form 8621 that shows the calculation of its pro rata share of the post-1986 earnings and profits of the section 1297(e) PFIC (as defined in Regulations section 1.1291-9(j)(2)(v)) that is treated as distributed to the shareholder on the CFC qualification date. The post-1986 earnings and profits may be reduced (but not below zero) by the amount that the shareholder satisfactorily shows was previously included in its income or in the income of another U.S. person. The shareholder shows this by including in the statement mentioned above the following information:

For more information on making election G, see Regulations section 1.1297-3(c).

This is a deemed dividend election under section 1298(b)(1) and Regulations section 1.1298-3(c). This election may be made by a shareholder of a foreign corporation that no longer qualifies as a PFIC under either the income or asset test of section 1297(a) if the foreign corporation was a CFC during its last taxable year as a PFIC.

A shareholder making this election is treated as receiving a dividend of its pro rata share of the post-1986 earnings and profits (defined below) of the former PFIC on the termination date (defined below). The deemed dividend is taxed under section 1291 as an excess distribution, allocated only to the days in the shareholder’s holding period during which the foreign corporation qualified as a PFIC. For this purpose, the shareholder’s holding period ends on the termination date. After the deemed dividend election, the shareholder’s stock is not treated as stock in a PFIC.

For purposes of this election, the following rules apply:

This election must be made by the due date of the shareholder’s original return (or by filing an amended return within 3 years of the due date, as extended under section 6081, of the original return) for the tax year that includes the first day on which the qualified portion of the shareholder’s holding period in the PFIC begins, as determined under section 1297(d). However see Form 8621-A (and Regulations section 1.1298-3(e)) if the 3-year period has expired.

To make this election, check box H in Part II and complete Part V, line 16. Also attach to Form 8621 the information specified below.

The shareholder must attach a statement to Form 8621 that shows the calculation of its pro rata share of the post-1986 earnings and profits of the former PFIC that is treated as distributed to the shareholder on the termination date. The post-1986 earnings and profits may be reduced (but not below zero) by the amount that the shareholder satisfactorily shows was previously included in its income or in the income of another U.S. person. The shareholder shows this by including in the statement mentioned above the following information:

For more information on making election H, see Regulations section 1.1298-3(c).

Lines 6a and 7a.   Enter on lines 6a and 7a, respectively, your pro rata share of the ordinary earnings and net capital gain of the QEF. The PFIC should provide these amounts or information that will help you determine your pro rata share. See Annual Election Requirements of the PFIC or Intermediary earlier.

Lines 6b and 7b.   Your share of the ordinary earnings and net capital gain of the QEF is reduced by the amounts you include in income under section 951 for the tax year with respect to the QEF. Your share of these amounts may also be reduced as provided in section 1293(g).

Line 6c.   This amount is treated as ordinary income on your tax return.

  For a noncorporate taxpayer, include this amount as “other income” on line 21 of Form 1040, or on the comparable line of other noncorporate tax returns. For a corporate taxpayer, include this amount as “other income” on line 10 of Form 1120, or on the comparable line of other corporate tax returns.

Line 7c.    See the instructions for the Schedule D used for your tax return. Portions of the net capital gain may have to be reported on different lines of Schedule D, depending upon the information provided by the QEF concerning the section 1(h) categories of net capital gains and amounts thereof, derived by the QEF. See Regulations section 1.1293-1(a)(2) for three options a QEF may use to report and calculate capital gain.

Line 9a.   Enter the total tax on your total taxable income (including your share of undistributed earnings of the QEF) for the tax year (e.g., from Form 1120, Schedule J, line 11, or Form 1040, line 61).

  For this purpose, “undistributed earnings” is the excess, if any, of the amount included in gross income under section 1293(a) over the sum of the amount of any distribution and the portion of the amount attributable to stock in the QEF that you transferred or otherwise disposed of before the end of the QEF's tax year.

Line 9b.   Calculate your total tax as if your total taxable income did not include your share of the undistributed earnings of the QEF (line 8e). Enter this amount on line 9b.

Line 9c.   For corporations, enter this tax on Form 1120, Schedule J, in brackets to the left of the entry space for line 11. Subtract that amount from the total of lines 7 through 10 and enter the difference on line 11.

  For individuals, enter this tax on Form 1040 in brackets to the left of the entry space for line 61. Subtract that amount from the total of lines 56 through 60, and enter the difference on line 61.

Unreversed inclusions.    Unreversed inclusions are the excess of the amounts that were included in income under the mark-to-market rules for prior tax years over the amounts allowed as a deduction under the mark-to-market rules for prior tax years. See section 1296(d) and Regulations section 1.1296-1(a)(3).

Lines 10c and 12.    Corporations and individuals should include the gain or (loss) on the “other income” line of their tax returns. Other entities should include this amount on the comparable line of their tax return. However, Regulated Investment Companies, for purposes of section 851(b), should treat this amount as a dividend.

   If a CFC makes a mark-to-market election with respect to a PFIC in which it owns stock, any line 10c gain is treated as foreign personal holding company income and any line 12 loss is treated as a deduction that is allocable to foreign personal holding company income.

Line 13c.   If the fair market value of the stock on the date of sale or disposition (line 13a) is more than the U.S. person's adjusted basis in the stock on the date of sale or disposition (line 13b), the line 13c excess is a gain and is treated as ordinary income. Corporations and individuals should include the gain on the “other income” line of their tax returns. Other entities should include this amount on the comparable line of their tax return.

  If the adjusted basis of the stock (line 13b) exceeds its fair market value (line 13a), the excess is a loss and is entered on line 13c as such. Furthermore, the filer must complete lines 14a and 14b, and, if applicable, line 14c.

Line 14a.    Enter any unreversed inclusions with respect to the stock (see definition earlier).

Line 14b.    Enter the loss from line 13c, but only to the extent of unreversed inclusions on line 14a. This loss is treated as ordinary loss. Corporations and individuals should include the loss on the “other income” line of their tax returns. Other entities should include this amount on the comparable line of their tax return. However, Regulated Investment Companies, for purposes of section 851(b), should treat this amount as a dividend.

Line 14c.    Enter the amount by which the loss on line 13c exceeds the unreversed inclusions. This amount is subject to the rules generally applicable to losses provided elsewhere in the Code and regulations thereunder. See Regulations section 1.1296-1(c)(4)(ii).

Multiple dispositions.   In the case of multiple dispositions, attach a statement for each disposition using the same format shown on lines 13 through 14c. Then:

Enter your total distributions from the section 1291 fund with respect to the applicable stock for the periods indicated.

Line 15a.   If the holding period of the applicable stock began in the current year, there is no excess distribution and Part V should be completed as follows: Enter on line 15a the total distributions you received from the section 1291 fund with respect to that stock during the current tax year. If you did not dispose of that stock during the tax year, do not complete the rest of Part V. If you did dispose of that stock during the tax year, skip lines 15b through 15e and complete lines 15f and 16.

  If the holding period of the applicable stock began in the current tax year, the line 15a amount is taxed according to the rules of section 301. To the extent that section 301(c)(1) is applicable, include the amount as a dividend on your income tax return. For corporations, include this amount on Form 1120, Schedule C, line 13. For individuals, include this line 15a amount on Form 1040, line 9a (and, if applicable, on Schedule B (Form 1040), line 5).

Line 15c.   Divide the amount on line 15b by 3. If the number of tax years in your holding period preceding the current tax year is less than 3, divide the amount on line 15b by that number.

Nonexcess distribution.    The nonexcess distribution is the lesser of line 15a or line 15d. This amount is taxed according to the rules of section 301. To the extent that section 301(c)(1) is applicable, include the amount as a dividend on your income tax return. For corporations, include this amount on Form 1120, Schedule C, line 13. For individuals, include this amount on Form 1040, line 9a (and, if applicable, on Schedule B (Form 1040), line 5).

Excess distributions.   If you received more than one distribution during the tax year with respect to the applicable stock, the excess distribution is apportioned among all actual distributions. Each apportioned amount is treated as a separate excess distribution.

Line 15f.   Gain recognized on the disposition of stock of a section 1291 fund is treated as an excess distribution. Stock of a section 1291 fund is considered disposed of if it is sold, transferred, or pledged.

Determine the taxation of the excess distribution on a separate sheet and attach it to Form 8621. Divide the amount on line 15e or 15f, whichever applies, by the number of days in your holding period. The holding period of the stock is treated as ending on the date of the distribution or disposition.

Special rules apply to the holding period if:

Determine the amount allocable to each tax year in your holding period by adding the amounts allocated to the days in each such tax year. Add the amounts allocated to the pre-PFIC and current tax years. Enter the sum on line 16b.

This amount is treated as ordinary income (e.g., individuals and corporations should enter this amount on the “other income” line of their tax return).

Line 16c.   Determine the increase in tax for each tax year in your holding period (other than the current tax year and pre-PFIC years). An increase in tax is determined for each PFIC year by multiplying the part of the excess distribution allocated to each year (as determined on line 16a) by the highest rate of tax under section 1 or section 11, whichever applies, in effect for that tax year. Add the increases in tax computed for all years. Enter the aggregate increases in tax (before credits) on line 11c.

Line 16d.   To figure the foreign tax credit, the shareholder of a section 1291 fund figures the total creditable foreign taxes attributable to the distribution. This amount includes the direct foreign taxes paid by the shareholder on the distribution (for example, withholding taxes) and, for 10% or greater corporate shareholders, any taxes deemed paid under section 902. Both the direct and indirect foreign taxes must be creditable under general foreign tax credit principles and the shareholder must choose to claim the foreign tax credit for the current tax year.

  The excess distribution taxes (the creditable foreign taxes attributable to an excess distribution) are determined by apportioning the total creditable foreign taxes between the part of the distribution that is an excess distribution and the part that is not.

  The excess distribution taxes are allocated in the same manner as the excess distribution is allocated. See Excess distributions earlier. Those taxes allocated to pre-PFIC tax years and the current tax year are taken into account for the current tax year under the general rules of the foreign tax credit.

  The excess distribution taxes allocated to a PFIC year only reduce the increase in tax figured for that tax year (but not below zero). No carryover of any unused excess distribution taxes is allowed.

  When you dispose of PFIC stock, the above foreign tax credit rules apply only to the part of the gain that, without regard to section 1291, would be treated under section 1248 as a dividend.

Line 16e.   This amount is the aggregate increase in tax and is included on your tax return as additional taxes.

  For individuals, enter this amount on Form 1040 to the left of the line 44 entry space. Enter “Sec. 1291” next to the amount and include the amount as part of the total for line 44.

   For corporations, enter this amount on Form 1120, Schedule J, to the left of the entry space for line 2. Enter “Sec. 1291” next to the amount and include it as part of the total for line 2. Other entities should use the comparable line on their income tax return.

Line 16f.   Interest is charged on each net increase in tax for the period beginning on the due date (without regard to extensions) of your income tax return for the tax year to which an increase in tax is attributable and ending with the due date (without regard to extensions) of your income tax return for the tax year of the excess distribution.

  For individuals, enter the interest at the bottom right margin of Form 1040, page 1 and label it as “Sec. 1291 interest.” Include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the refund by the interest due.

  For corporations, enter this interest at the bottom right margin of Form 1120, page 1, and label it as “Sec. 1291 interest.” Include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the refund by the interest due.

Line 17.   Enter the last day of each tax year for which you made a section 1294 election that is outstanding. Do not include an election made in the current tax year.

Line 18.   Enter the undistributed earnings of the QEF for which the payment of tax was extended by the section 1294 election entered on line 17. If the election was partially terminated in a prior year, enter the remaining undistributed earnings.

Line 19.   Enter the tax for which payment was extended by the section 1294 election entered on line 17. If the election was partially terminated in a previous tax year, enter the balance of the deferred tax.

Line 20.   Enter the accrued interest (determined under section 6621) on the deferred tax. This is the interest accrued from the due date (not including extensions) of the return for the year for which the section 1294 election was made until the date the current year's return is filed.

Line 21.   Enter the event(s) that occurred during the tax year that terminated one or more of the section 1294 elections reported on line 17. A section 1294 election may be terminated voluntarily. However, an election will terminate automatically, in whole or in part, when any of the following events occur:

  

Line 22.   Enter the earnings distributed or deemed distributed as a result of the events described on line 21. Earnings are treated as distributed out of the most recently accumulated earnings and profits. Accordingly, an event will first terminate the most recently made election.

  An election may be terminated in whole or in part depending on the event causing the termination. Examples are as follows.

  For more information, see Regulations section 1.1294-1T(e).

Line 23.   Enter the deferred tax due from the termination of the section 1294 election. The deferred tax entered on line 19 is due if the election was completely terminated. If the election was only partially terminated, a proportionate amount of the deferred tax is due. That amount is determined by multiplying the amount entered on line 19 by a fraction, of which the numerator is the amount entered on line 22 and the denominator is the amount entered on line 18. The deferred tax is due by the due date of the shareholder's income tax return (without regard to extensions) for the year of termination.

  When the election is terminated, corporations include the deferred tax as part of the total for Form 1120, Schedule J, line 11. Also enter the deferred tax to the left of line 11 and label it as “Sec. 1294 deferred tax.”

  For individuals, enter the deferred tax as part of the total for Form 1040, line 61. Also enter the deferred tax to the left of line 61, and label it as “Sec. 1294 deferred tax.”

Line 24.   Enter the interest accrued on the deferred tax. Interest accrues beginning on the due date (without regard to extensions) of your tax return for the tax year in which the section 1294 election is made, and ending with the due date (without regard to extensions) of your tax return for the tax year of the termination. Interest is computed using the rates and methods under section 6621.

   For corporations, enter the amount of section 1294 interest at the bottom right margin of Form 1120, page 1 and label it as “Sec. 1294 interest.” Also include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the refund by the interest due.

  For individuals, enter the interest from line 24 at the bottom right margin of Form 1040, page 1, and label it as “Sec. 1294 interest.” Also include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the amount of the refund by the amount of interest due.

Lines 25 and 26.   Complete lines 25 and 26 only if you have partially terminated your section 1294 election. Enter on line 25 the part of the deferred tax outstanding after the partial termination of the section 1294 election. This amount should equal line 19 minus line 23.

  Enter on line 26 the accrued interest remaining after the partial termination of the section 1294 election. This amount should equal line 20 minus line 24.