
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1247]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter P--Capital Gains and Losses
 
     PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
 
Sec. 1247. Election by foreign investment companies to 
        distribute income currently
        

(a) Election by foreign investment company

                           (1) In general

        If a foreign investment company which is described in section 
    1246(b)(1) elects (in the manner provided in regulations prescribed 
    by the Secretary) on or before December 31, 1962, with respect to 
    each taxable year beginning after December 31, 1962, to--
            (A) distribute to its shareholders 90 percent or more of 
        what its taxable income would be if it were a domestic 
        corporation;
            (B) designate in a written notice mailed to its shareholders 
        at any time before the expiration of 45 days after the close of 
        its taxable year the pro rata amount of the amount (determined 
        as if such corporation were a domestic corporation) of the net 
        capital gain of the taxable year; and the portion thereof which 
        is being distributed; and
            (C) provide such information as the Secretary deems 
        necessary to carry out the purposes of this section,

    then section 1246 shall not apply with respect to the qualified 
    shareholders of such company during any taxable year to which such 
    election applies.

                          (2) Special rules

        (A) Computation of taxable income

            For purposes of paragraph (1)(A), the taxable income of the 
        company shall be computed without regard to--
                (i) the net capital gain referred to in paragraph 
            (1)(B),
                (ii) section 172 (relating to net operating losses), and
                (iii) any deduction provided by part VIII of subchapter 
            B (other than the deduction provided by section 248, 
            relating to organizational expenditures).

        (B) Distributions after the close of the taxable year

            For purposes of paragraph (1)(A), a distribution made after 
        the close of the taxable year and on or before the 15th day of 
        the third month of the next taxable year shall be treated as 
        distributed during the taxable year to the extent elected by the 
        company (in accordance with regulations prescribed by the 
        Secretary) on or before the 15th day of such third month.

        (C) Carryover of capital losses from nonelection years denied

            In computing the net capital gain referred to in paragraph 
        (1)(B), section 1212 shall not apply to losses incurred in or 
        with respect to taxable years before the first taxable year to 
        which the election applies.

(b) Years to which election applies

    The election of any foreign investment company under this section 
shall terminate as of the close of the taxable year preceding its first 
taxable year in which any of the following occurs:
        (1) the company fails to comply with the provisions of 
    subparagraph (A), (B), or (C) of subsection (a)(1), unless it is 
    shown that such failure is due to reasonable cause and not due to 
    willful neglect,
        (2) the company is a foreign personal holding company, or
        (3) the company is not a foreign investment company which is 
    described in section 1246(b)(1).

(c) Qualified shareholders

    For purposes of this section--

                           (1) In general

        The term ``qualified shareholder'' means any shareholder who is 
    a United States person (as defined in section 7701(a)(30)), other 
    than a shareholder described in paragraph (2).

     (2) Certain United States persons excluded from definition

        A United States person shall not be treated as a qualified 
    shareholder for the taxable year if for such taxable year (or for 
    any prior taxable year) he did not include, in computing his long-
    term capital gains in his return for such taxable year, the amount 
    designated by such company pursuant to subsection (a)(1)(B) as his 
    share of the undistributed capital gains of such company for its 
    taxable year ending within or with such taxable year of the 
    taxpayer. The preceding sentence shall not apply with respect to any 
    failure by the taxpayer to treat an amount as provided therein if 
    the taxpayer shows that such failure was due to reasonable cause and 
    not due to willful neglect.

(d) Treatment of distributed and undistributed capital gains by a 
        qualified shareholder

    Every qualified shareholder of a foreign investment company for any 
taxable year of such company with respect to which an election pursuant 
to subsection (a) is in effect shall include, in computing his long-term 
capital gains--
        (1) for his taxable year in which received, his pro rata share 
    of the distributed portion of the net capital gain for such taxable 
    year of such company, and
        (2) for his taxable year in which or with which the taxable year 
    of such company ends, his pro rata share of the undistributed 
    portion of the net capital gain for such taxable year of such 
    company.

(e) Adjustments

    Under regulations prescribed by the Secretary, proper adjustment 
shall be made--
        (1) in the earnings and profits of the electing foreign 
    investment company and a qualified shareholder's ratable share 
    thereof, and
        (2) in the adjusted basis of stock of such company held by such 
    shareholder,

to reflect such shareholder's inclusion in gross income of undistributed 
capital gains.

(f) Election by foreign investment company with respect to foreign tax 
        credit

    A foreign investment company with respect to which an election 
pursuant to subsection (a) is in effect and more than 50 percent of the 
value (as defined in section 851(c)(4)) of whose total assets at the 
close of the taxable year consists of stock or securities in foreign 
corporations may, for such taxable year, elect the application of this 
subsection with respect to income, war profits, and excess profits taxes 
described in section 901(b)(1) which are paid by the foreign investment 
company during such taxable year to foreign countries and possessions of 
the United States. If such election is made--
        (1) the foreign investment company--
            (A) shall compute its taxable income, for purposes of 
        subsection (a)(1)(A), without any deductions for income, war 
        profits, or excess profits taxes paid to foreign countries or 
        possessions of the United States, and
            (B) shall treat the amount of such taxes, for purposes of 
        subsection (a)(1)(A), as distributed to its shareholders;

        (2) each qualified shareholder of such foreign investment 
    company--
            (A) shall include in gross income and treat as paid by him 
        his proportionate share of such taxes, and
            (B) shall treat, for purposes of applying subpart A of part 
        III of subchapter N, his proportionate share of such taxes as 
        having been paid to the country in which the foreign investment 
        company is incorporated, and
            (C) shall treat as gross income from sources within the 
        country in which the foreign investment company is incorporated, 
        for purposes of applying subpart A of part III of subchapter N, 
        the sum of his proportionate share of such taxes and any 
        dividend paid to him by such foreign investment company.

(g) Notice to shareholders

    The amounts to be treated by qualified shareholders, for purposes of 
subsection (f)(2), as their proportionate share of the taxes described 
in subsection (f)(1)(A) paid by a foreign investment company shall not 
exceed the amounts so designated by the foreign investment company in a 
written notice mailed to its shareholders not later than 45 days after 
the close of its taxable year.

(h) Manner of making election and notifying shareholders

    The election provided in subsection (f) and the notice to 
shareholders required by subsection (g) shall be made in such manner as 
the Secretary may prescribe by regulations.

(i) Loss on sale or exchange of certain stock held less than 1 year

    If--
        (1) under this section, any qualified shareholder treats any 
    amount designated under subsection (a)(1)(B) with respect to a share 
    of stock as long-term capital gain, and
        (2) such share is held by the taxpayer for less than 1 year,

then any loss on the sale or exchange of such share shall, to the extent 
of the amount described in paragraph (1), be treated as loss from the 
sale or exchange of a capital asset held for more than 1 year.

(Added Pub. L. 87-834, Sec. 14(a)(1), Oct. 16, 1962, 76 Stat. 1037; 
amended Pub. L. 94-455, title XIV, Sec. 1402(b)(1)(X), (2), title XIX, 
Secs. 1901(b)(33)(P), (R), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 
1802, 1834; Pub. L. 98-369, div. A, title X, Sec. 1001(b)(21), (e), July 
18, 1984, 98 Stat. 1012.)


                               Amendments

    1984--Subsec. (i)(2). Pub. L. 98-369 substituted ``6 months'' for 
``1 year'', applicable to property acquired after June 22, 1984, and 
before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
    1976--Subsec. (a)(1)(B), (C). Pub. L. 94-455, Sec. 1901(b)(33)(P), 
substituted ``the amount (determined as if such corporation were a 
domestic corporation) of the net capital gain'' for ``the excess 
(determined as if such corporation were a domestic corporation) of the 
net long-term capital gain over the net short-term capital loss'', and 
Sec. 1906(b)(13)(A) struck out ``or his delegate'' after ``Secretary''.
    Subsec. (a)(2)(A)(i), (B), (C). Pub. L. 94-455, Sec. 1901(b)(33)(R), 
substituted in subpars. (A)(i) and (C) ``the net capital gain'' for 
``the excess of the net long-term capital gain over the net short-term 
capital loss,''. Sec. 1906(b)(13)(A) struck out in subpara. (a)(2)(B) 
``or his delegate'' after ``Secretary''.
    Subsec. (d)(1), (2). Pub. L. 94-455, Sec. 1901(b)(33)(R), 
substituted ``the net capital gain'' for ``the excess of the net long-
term capital gain over the net short-term capital loss,''.
    Subsecs. (e), (h). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out 
``or his delegate'' after ``Secretary''.
    Subsec. (i). Pub. L. 94-455, Sec. 1402(b)(2), provided that ``9 
months'' would be changed to ``1 year'' wherever appearing.
    Pub. L. 94-455, Sec. 1402(b)(1)(X), provided that ``6 months'' would 
be changed to ``9 months'' for taxable years beginning in 1977.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-369 applicable to property acquired after 
June 22, 1984, and before Jan. 1, 1988, see section 1001(e) of Pub. L. 
98-369, set out as a note under section 166 of this title.


                    Effective Date of 1976 Amendment

    Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning in 1977.
    Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning after Dec. 31, 1977.
    Amendment by section 1901(b)(33)(P), (R) of Pub. L. 94-455 effective 
for taxable years beginning after Dec. 31, 1976, see section 1901(d) of 
Pub. L. 94-455, set out as a note under section 2 of this title.


                             Effective Date

    Section applicable with respect to taxable years beginning after 
Dec. 31, 1962, see section 14(c) of Pub. L. 87-834, set out as a note 
under section 1246 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 1, 951, 1212, 1248, 1297 of 
this title.
