Page:United States Statutes at Large Volume 100 Part 3.djvu/761

 PUBLIC LAW 99-514—OCT. 22, 1986

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100 STAT. 2569

"(ii) the taxpayer holds stock in such company on the first day of such taxable year, and "(iii) the taxpayer establishes to the satisfaction of the Secretary the fair market value of such stock on such first day, the taxpayer may elect to recognize gain as if he sold such stock on such first day for such fair market value. "(B) ADJUSTMENTS.—In the case of any stock to which subparagraph (A) applies— "(i) the adjusted basis of such stock shall be increased by the gain recognized under subparagraph (A), and "(ii) the taxpayer's holding period in such stock shall be treated as beginning on the first day referred to in subparagraph (A).

"(e) CERTAIN BASIS, ETC., RULES MADE APPLICABLE.—Rules similar

to the rules of subsections (c), (d), (e), and if) of section 1246 shall apply for purposes of this section; except that— "(1) the reduction under subsection (e) of such section shall be the excess of the basis determined under section 1014 over the adjusted basis of the stock immediately before the decedent's death, and "(2) such a reduction shall not apply in the case of a decedent who was not a nonresident alien at all times during his holding period in the stock. "(f) NoNRECOGNiTiON PROVISIONS.—To the extent provided in regulations, gain shall be recognized on any disposition of stock in a passive foreign investment company. "Subpart B—Treatment of Qualified Electing Funds "Sec. 1293. Current taxation of income from qualified electing funds. "Sec. 1294. Election to extend time for payment of tax on undistributed earnings. "Sec. 129.5. Qualified electing fund.

"SEC. 1 9 3 CURRENT TAXATION OF INCOME FROM QUALIFIED ELECTING 2.. FUNDS. "(a) INCLUSION.—

"(1) IN GENERAL.—Every United States person who owns (or is treated under section 1297(a) as owning) stock of a qualified electing fund at any time during the taxable year of such fund shall include in gross income— "(A) as ordinary income, such shareholder's pro rata share of the ordinary earnings of such fund for such year, iJ and "(B) as long-term capital gain, such shareholder's pro rata share of the net capital gain of such fund for such year. "(2) YEAR OF INCLUSION.—The inclusion under paragraph (1) shall be for the taxable year of the shareholder in which or with which the taxable year of the fund ends. "(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. "(c) PREVIOUSLY TAXED AMOUNTS DISTRIBUTED TAX FREE.—If the

taxpayer establishes to the satisfaction of the Secretary that any

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