New rules regarding the election to be treated as a Qualifying Insurance Corporation that a U.S. shareholder may apply retroactively

 

Final regulations change the requirements for the election of a U.S. person that is a shareholder of a foreign corporation to treat stock of a foreign corporation as a qualifying insurance corporation for the shareholder's tax years beginning on or after January 14, 2021 and for any open tax year in which the U.S. shareholder chooses to apply the new rules beginning after December 31, 2017 and before January 14, 2021, provided the U.S. shareholder consistently applies the final regulation's insurance provisions (Regulations sections 1.1297-4 and 1.1297-6) for such year and all subsequent years. The new rules (1) expand the availability of the election to include a U.S. person who is considered to own stock in the foreign corporation by reason of holding an option; (2) provide a deemed election for small shareholders in publicly traded companies, (3) no longer require a U.S. shareholder making the election to attach a copy of the statement from the foreign corporation to the Form 8621 (or successor form) attached to its Federal income tax return for the tax year to which it relates; and (4) allow a U.S. shareholder to make the election by attaching the Form 8621 (or successor form) to its amended Federal income tax return for the tax year to which it relates, if the U.S. person can demonstrate that the reason for not filing the form with its original return was due to reasonable cause.

The deemed election for small shareholders in publicly traded companies is available only if (1) the stock of the foreign corporation that is owned by the U.S. person (including stock owned indirectly) has a value of $25,000 or less ($50,000 or less in the case of a joint return) on the last day of the U.S. person's tax year and on any day during the tax year on which the U.S. person disposes of stock of the foreign corporation; and (2) if the U.S. person owns stock of the foreign corporation indirectly through a domestic partnership, domestic trust, domestic estate, or S corporation (a domestic pass-through entity), the stock of the foreign corporation that is owned by the domestic pass-through entity has a value of $25,000 or less on the last day of the tax year of the domestic pass-through entity that ends with or within the U.S. person's tax year and on any day during the tax year of the domestic pass-through entity on which it disposes of stock of the foreign corporation. For purposes of the deemed election, stock is publicly traded if it would be treated as marketable stock within the meaning of section 1296(e) and Regulations section 1.1296-2 (without regard to Regulations section 1.1296-2(d)) if the election under section 1297(f)(2) is not made.