Page:United States Statutes at Large Volume 100 Part 3.djvu/764

 100 STAT. 2572

PUBLIC LAW 99-514—OCT. 22, 1986 "(A) determining the ordinary earnings and net capital gain of such company for the taxable year, "(B) ascertaining the ownership of its outstanding stock, and "(C) otherwise carrying out the purposes of this subpart. "(b) ELECTION.—

"(1) IN GENERAL.—A passive foreign investment company may make an election under this subsection for any taxable year. Such an election, once made, shall apply to all subsequent taxable years of such company for which such company is a passive foreign investment company unless revoked with the consent of the Secretary. "(2) WHEN MADE.—An election under this subsection may be made for any taxable year at any time before the 15th day of the 3rd month of the following taxable year.

"Subpart C—General Provisions "Sec. 1296. Passive foreign investment company. "Sec. 1297. Special rules. "SEC. 1296. 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— "(1) 75 percent or more of the gross income of such corporation for the taxable year is passive income, or "' ' "(2) the average percentage of assets (by value) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent. "(b) PASSIVE INCOME.—For purposes of this section— "(1) IN GENERAL.—Except as provided in paragraph (2), the term 'passive income' has the meaning given such term by section 904(d)(2)(A) without regard to the exceptions contained in clause (iii) thereof. "(2) EXCEPTION FOR CERTAIN BANKS AND INSURANCE COMPA-

NIES.—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), or "(B) derived in the active conduct of an insurance business by a corporation which would be subject to tax under subchapter L if it were a domestic corporation. "(c) LOOK-THRU IN THE CASE OF 25-PERCENT OWNED CORPORA-

TIONS.—If a foreign corporation owns 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— "(1) held its proportionate share of the assets of such other corporation, and "(2) received directly its proportionate share of the income of J' such other corporation. ..... i

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