#### § 1.1297-0 Table of contents.

This section contains a listing of the headings for §§ 1.1297-1, 1.1297-2, 1.1297-3, 1.1297-4, 1.1297-5, and 1.1297-6.

## § 1.1297-1 Definition of passive foreign investment company.

(a) Overview.

(b) Dividends included in gross income.

(1) General rule.

(2) Example.

(i) Facts.

(ii) Results.

(c) Passive income.

(1) Foreign personal holding company income.

(i) General rule.

(ii) Determination of gross income or gain on a net basis for certain items of foreign personal holding company income.

(iii) Amounts treated as dividends.

(2) [Reserved]

(3) Passive treatment of dividends and distributive share of partnership income.

(4) Exception for certain interest, dividends, rents, and royalties received from a related person.

(i) In general.

(ii) Ordering rule.

(iii) Allocation of interest.

(iv) Allocation of dividends.

(A) In general.

(B) Dividends paid out of current earnings and profits.

(C) Dividends paid out of accumulated earnings and profits.

(v) Allocation of rents and royalties.

(vi) Determination of whether amounts are received or accrued from a related person.

(vii) Allocation of distributive share of income from related partnership.

(d) Asset test.

(1) Calculation of average annual value (or adjusted bases).

(i) General rule.

(ii) Measuring period.

(A) General rule.

(B) Election to use alternative measuring period.

(C) Short taxable year.

(iii) Adjusted basis election.

(iv) Time and manner of elections and revocations.

(A) Elections.

(B) Revocations and subsequent elections.

(v) Method of measuring assets.

(A) Publicly traded foreign corporations.

(B) Non-publicly traded controlled foreign corporation.

(*1*) In general.

(*2*) Controlled foreign corporation determination.

(C) Other foreign corporations.

(*1*) In general.

(*2*) Lower-tier subsidiaries.

(*i*) Lower-tier subsidiaries that are publicly traded foreign corporations.

(*ii*) Lower-tier subsidiaries that are non-publicly traded controlled foreign corporations.

(*iii*) Other lower-tier subsidiaries.

(D) [Reserved]

(E) Examples.

(*1*) Example 1.

(*i*) Facts.

(*ii*) Results.

(*2*) Example 2.

(*i*) Facts.

(*ii*) Results.

(*3*) Example 3.

(*i*) Facts.

(*ii*) Results.

(2) [Reserved]

(3) Dual-character assets.

(i) General rule.

(ii) Special rule when only part of an asset produces income.

(iii) Special rule for stock that previously produced income that was excluded from passive income under section 1297(b)(2)(C).

(iv) Example.

(A) Facts.

(B) Results.

(4) Passive treatment of stock and partnership interests.

(5) Dealer property.

(e) Stapled stock.

(f) Definitions.

(1) Measuring date.

(2) Measuring period.

(3) Non-passive asset.

(4) Non-passive income.

(5) Passive asset.

(6) Passive income.

(7) Publicly traded foreign corporation.

(8) Related person.

(9) Tested foreign corporation.

(g) Applicability date.

(1) In general.

(2) Paragraph (d)(1)(v)(B)(*2*) of this section.

## § 1.1297-2 Special rules regarding look-through subsidiaries and look-through partnerships.

(a) Overview.

(b) General rules.

(1) Tested foreign corporation's ownership of a corporation.

(2) Tested foreign corporation's proportionate share of the assets and income of a look-through subsidiary.

(i) Proportionate share of subsidiary assets.

(ii) Proportionate share of subsidiary income.

(A) General rule.

(B) Partial year.

(iii) Coordination of section 1297(c) with section 1298(b)(7).

(3) Tested foreign corporation's proportionate share of the assets and income of a look-through partnership.

(i) Proportionate share of partnership assets.

(ii) Proportionate share of partnership income.

(A) General rule.

(B) Partial year.

(4) Examples.

(i) Example 1.

(A) Facts.

(B) Results.

(*1*) LTS.

(*2*) TFC.

(ii) Example 2.

(A) Facts.

(B) Results.

(iii) Example 3.

(A) Facts.

(B) Results.

(c) Elimination of certain intercompany assets and income.

(1) General rule for asset test.

(i) LTS stock.

(ii) LTS obligation.

(2) General rule for income test.

(i) LTS stock.

(ii) LTS obligation.

(3) Partnerships.

(4) Examples.

(i) Example 1.

(A) Facts.

(B) Results.

(*1*) LTS.

(*2*) TFC.

(ii) Example 2.

(A) Facts.

(B) Results.

(iii) Example 3.

(A) Facts.

(B) Results.

(iv) Example 4.

(A) Facts.

(B) Results.

(v) Example 5.

(A) Facts.

(B) Results.

(*1*) Asset test.

(*2*) Income test.

(*3*) Treatment of intangible and rental property.

(d) Related person determination for purposes of section 1297(b)(2)(C).

(1) General rule.

(2) Example.

(i) Facts.

(ii) Results.

(e) Treatment of activities of certain look-through subsidiaries and look-through partnerships for purposes of certain exceptions.

(1) General rule.

(2) Qualified affiliate.

(3) Examples.

(i) Example 1.

(A) Facts.

(B) Results.

(*1*) Qualified affiliates.

(*2*) FS1 and FS2.

(*3*) FS4.

(ii) Example 2.

(A) Facts.

(B) Results.

(iii) Example 3.

(A) Facts.

(B) Results.

(f) Gain on disposition of a look-through subsidiary or look-through partnership.

(1) [Reserved]

(2) Amount of gain taken into account from disposition of look-through subsidiary.

(3) Characterization of residual gain as passive income.

(4) Gain taken into account from disposition of 25%-owned partnerships and look-through partnerships.

(i) Section 954(c)(4) partnerships.

(ii) Look-through partnerships.

(5) Examples.

(i) Example 1.

(A) Facts.

(B) Results.

(ii) Example 2.

(A) Facts.

(B) Results.

(iii) Example 3.

(A) Facts.

(B) Results.

(g) Definitions.

(1) Direct LTS obligation.

(2) Indirect LTS obligation.

(3) Look-through subsidiary.

(4) Look-through partnership.

(i) In general.

(ii) Active partner test.

(A) Partnership interest under asset test.

(B) Partnership income under income test.

(iii) Election.

(iv) Examples.

(A) Example 1.

(*1*) Facts.

(*2*) Results.

(*i*) Active partner test with respect to partnership interest.

(*ii*) Active partner test with respect to partnership income.

(*iii*) Qualification of look-through partnership.

(B) Example 2.

(*1*) Facts.

(*2*) Results.

(*i*) Active partner test with respect to partnership interest.

(*ii*) Active partner test with respect to partnership income.

(*iii*) Failure to qualify as look-through partnership.

(5) LTS debt.

(6) LTS lease.

(7) LTS license.

(8) LTS obligation.

(9) LTS stock.

(10) Qualified affiliate.

(11) Residual gain.

(12) TFC obligation.

(13) Unremitted earnings.

(h) Applicability date.

## § 1.1297-3 Deemed sale or deemed dividend election by a U.S. person that is a shareholder of a section 1297(e) PFIC.

(a) In general.

(b) Application of deemed sale election rules.

(1) Eligibility to make the deemed sale election.

(2) Effect of the deemed sale election.

(3) Time for making the deemed sale election.

(4) Manner of making the deemed sale election.

(5) Adjustments to basis.

(6) Treatment of holding period.

(c) Application of deemed dividend election rules.

(1) Eligibility to make the deemed dividend election.

(2) Effect of the deemed dividend election.

(3) Post-1986 earnings and profits defined.

(4) Time for making the deemed dividend election.

(5) Manner of making the deemed dividend election.

(6) Adjustments to basis.

(7) Treatment of holding period.

(8) Coordination with section 959(e).

(d) CFC qualification date.

(e) Late purging elections requiring special consent.

(1) In general.

(2) Prejudice to the interests of the U.S. government.

(3) Procedural requirements.

(4) Time and manner of making late election.

(5) Multiple late elections.

(f) Effective/applicability date.

## § 1.1297-4 Qualifying insurance corporation.

(a) Scope.

(b) Qualifying insurance corporation.

(c) 25 percent test.

(d) Election to apply the alternative facts and circumstances test.

(1) In general.

(2) Predominantly engaged in an insurance business.

(i) In general.

(ii) Facts and circumstances.

(iii) Examples of facts indicating a foreign corporation is not predominantly engaged in an insurance business.

(3) Runoff-related circumstances.

(4) Rating-related circumstances.

(5) Election.

(i) In general.

(ii) Information provided by foreign corporation.

(iii) Time and manner for making the election.

(iv) Deemed election for small shareholders in publicly traded companies.

(A) In general.

(B) Publicly traded stock.

(v) Options.

(6) Stock ownership.

(e) Rules limiting the amount of applicable insurance liabilities.

(1) In general.

(2) General limitation on applicable insurance liabilities.

(3) Discounting.

(4) [Reserved]

(5) [Reserved]

(f) Definitions.

(1) Applicable financial statement.

(i) GAAP statements.

(ii) IFRS statements.

(iii) Regulatory annual statement.

(iv) [Reserved]

(2) Applicable insurance liabilities.

(i) In general.

(ii) Amounts not specified in paragraph (f)(2)(i) of this section.

(3) Applicable insurance regulatory body.

(4) Applicable reporting period.

(5) Financial guaranty insurance company.

(6) Financial statements.

(i) In general.

(ii) [Reserved]

(iii) [Reserved]

(7) Generally accepted accounting principles or GAAP.

(8) Insurance business.

(9) International financial reporting standards or IFRS.

(10) Mortgage insurance company.

(11) Total assets.

(g) Applicability date.

## § 1.1297-5 [Reserved]

## § 1.1297-6 Exception from the definition of passive income for active insurance income.

(a) Scope.

(b) Exclusion from passive income of active insurance income.

(c) Exclusion of assets for purposes of the passive asset test under section 1297(a)(2).

(d) Treatment of income and assets of certain look-through subsidiaries and look through partnerships for purposes of the section 1297(b)(2)(B) exception.

(1) General rule.

(2) Limitation.

(3) Examples.

(i) Example 1: QIC holds all the stock of an investment subsidiary.

(A) Facts.

(B) Result.

(C) Alternative Facts.

(*1*) Facts.

(*2*) Result.

(ii) Example 2: QIC holds all the stock of an operating subsidiary.

(A) Facts.

(B) Result.

(e) Qualifying domestic insurance corporation.

(1) General rule.

(2) [Reserved]

(3) [Reserved]

(f) Applicability date.

[T.D. 9360, 72 FR 54821, Sept. 27, 2007, as amended by T.D. 9936, 86 FR 4556, Jan. 15, 2021; T.D. 9936, 86 FR 13648, Mar. 10, 2021]