
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC551]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
   Subchapter G--Corporations Used to Avoid Income Tax on Shareholders
 
              PART III--FOREIGN PERSONAL HOLDING COMPANIES
 
Sec. 551. Foreign personal holding company income taxed to 
        United States shareholders
        

(a) General rule

    The undistributed foreign personal holding company income of a 
foreign personal holding company shall be included in the gross income 
of the citizens or residents of the United States, domestic 
corporations, domestic partnerships, and estates or trusts (other than 
foreign estates or trusts), who are shareholders in such foreign 
personal holding company (hereinafter called ``United States 
shareholders'') in the manner and to the extent set forth in this part.

(b) Amount included in gross income

    Each United States shareholder, who was a shareholder on the day in 
the taxable year of the company which was the last day on which a United 
States group (as defined in section 552(a)(2)) existed with respect to 
the company, shall include in his gross income, as a dividend, for the 
taxable year in which or with which the taxable year of the company 
ends, the amount he would have received as a dividend (determined as if 
any distribution in liquidation actually made in such taxable year had 
not been made) if on such last day there had been distributed by the 
company, and received by the shareholders, an amount which bears the 
same ratio to the undistributed foreign personal holding company income 
of the company for the taxable year as the portion of such taxable year 
up to and including such last day bears to the entire taxable year.

(c) Information in return

    Every United States shareholder who is required under subsection (b) 
to include in his gross income any amount with respect to the 
undistributed foreign personal holding company income of a foreign 
personal holding company and who, on the last day on which a United 
States group existed with respect to the company, owned 5 percent or 
more in value of the outstanding stock of such company, shall set forth 
in his return in complete detail the gross income, deductions and 
credits, taxable income, foreign personal holding company, and 
undistributed foreign personal holding company income of such company.

(d) Effect on capital account of foreign personal holding company

    An amount which bears the same ratio to the undistributed foreign 
personal holding company income of the foreign personal holding company 
for its taxable year as the portion of such taxable year up to and 
including the last day on which a United States group existed with 
respect to the company bears to the entire taxable year, shall, for the 
purpose of determining the effect of distributions in subsequent taxable 
years by the corporation, be considered as paid-in surplus or as a 
contribution to capital, and the accumulated earnings and profits as of 
the close of the taxable year shall be correspondingly reduced, if such 
amount or any portion thereof is required to be included as a dividend, 
directly or indirectly, in the gross income of United States 
shareholders.

(e) Basis of stock in hands of shareholders

    The amount required to be included in the gross income of a United 
States shareholder under subsection (b) shall, for the purpose of 
adjusting the basis of his stock with respect to which the distribution 
would have been made (if it had been made), be treated as having been 
reinvested by the shareholder as a contribution to the capital of the 
corporation; but only to the extent to which such amount is included in 
his gross income in his return, increased or decreased by any adjustment 
of such amount in the last determination of the shareholder's tax 
liability, made before the expiration of 6 years after the date 
prescribed by law for filing the return.

(f) Stock held through foreign entity

    For purposes of this section, stock of a foreign personal holding 
company owned (directly or through the application of this subsection) 
by--
        (1) a foreign partnership or an estate or trust which is a 
    foreign estate or trust, or
        (2) a foreign corporation which is not a foreign personal 
    holding company,

shall be considered as being owned proportionately by its partners, 
beneficiaries, or shareholders. In any case to which the preceding 
sentence applies, the Secretary may by regulations provide that rules 
similar to the rules of section 1298(b)(5) shall apply, and provide for 
such other adjustments in the application of this subchapter as may be 
necessary to carry out the purposes of this subsection.

(g) Coordination with passive foreign investment company provisions

    If, but for this subsection, an amount would be included in the 
gross income of any person under subsection (a) and under section 1293 
(relating to current taxation of income from certain passive foreign 
investment companies), such amount shall be included in the gross income 
of such person only under subsection (a).

(h) Cross references

            (1) For basis of stock or securities in a foreign personal 
        holding company acquired from a decedent, see section 
        1014(b)(5).
            (2) For period of limitation on assessment and collection 
        without assessment, in case of failure to include in gross 
        income the amount properly includible therein under subsection 
        (b), see section 6501.

(Aug. 16, 1954, ch. 736, 68A Stat. 193; Pub. L. 88-272, title II, 
Sec. 225(f)(4), Feb. 26, 1964, 78 Stat. 88; Pub. L. 94-455, title XIX, 
Sec. 1901(a)(79), (b)(1)(F)(i), (12)(A), Oct. 4, 1976, 90 Stat. 1777, 
1790, 1795; Pub. L. 98-369, div. A, title I, Sec. 132(b), July 18, 1984, 
98 Stat. 666; Pub. L. 99-514, title XII, Sec. 1235(e), title XVIII, 
Sec. 1810(h)(2), Oct. 22, 1986, 100 Stat. 2575, 2829; Pub. L. 100-647, 
title I, Sec. 1012(bb)(1)(A), (B), Nov. 10, 1988, 102 Stat. 3533; Pub. 
L. 105-34, title XI, Sec. 1122(d)(2), Aug. 5, 1997, 111 Stat. 977.)


                               Amendments

    1997--Subsec. (f). Pub. L. 105-34 substituted ``section 1298(b)(5)'' 
for ``section 1297(b)(5)'' in concluding provisions.
    1988--Subsec. (a). Pub. L. 100-647, Sec. 1012(bb)(1)(B), substituted 
``(other than foreign estates or trusts)'' for ``(other than estates or 
trusts the gross income of which under this subtitle includes only 
income from sources within the United States)''.
    Subsec. (f). Pub. L. 100-647, Sec. 1012(bb)(1)(A), substituted ``a 
foreign partnership'' for ``a partnership, estate, or trust which is not 
a United States shareholder'' in par. (1) and ``that rules similar to 
the rules of section 1297(b)(5) shall apply, and provide for such other 
adjustments in the application of this subchapter as may be necessary to 
carry out the purposes of this subsection'' for ``for such adjustments 
in the application of this part as may be necessary to carry out the 
purposes of the preceding sentence'' in last sentence.
    1986--Subsec. (f)(1). Pub. L. 99-514, Sec. 1810(h)(2), inserted ``or 
an estate or trust which is a foreign estate or trust''.
    Subsecs. (g), (h). Pub. L. 99-514, Sec. 1235(e), added subsec. (g) 
and redesignated former subsec. (g) as (h).
    1984--Subsecs. (f), (g). Pub. L. 98-369 added subsec. (f) and 
redesignated former subsec. (f) as (g).
    1976--Subsec. (c). Pub. L. 94-455, Sec. 1901(a)(79), (b)(1)(F)(i), 
struck out subsec. (c) relating to deduction for obligations of United 
States and its instrumentalities. Former subsec. (d) redesignated (c) 
and, as redesignated, substituted ``foreign personal holding company 
income'' for ``foreign personal holding company'' after ``credits, 
taxable income''.
    Subsecs. (d), (e). Pub. L. 94-455, Sec. 1901(b)(1)(F)(i), 
redesignated subsecs. (d) and (e) as (c) and (d), respectively. Former 
subsecs. (e) and (f) redesignated (d) and (e), respectively.
    Subsecs. (f), (g). Pub. L. 94-455, Secs. 1901(b)(1)(F)(i), 
(b)(12)(A), redesignated subsec. (f) as (e). Former subsec. (g) 
redesignated (f) and, as redesignated, struck out par. (3) relating to 
cross reference for treatment of gain on liquidation of certain foreign 
personal holding companies.
    1964--Subsec. (b). Pub. L. 88-272 inserted ``(determined as if any 
distribution in liquidation actually made in such taxable year had not 
been made)''.


                    Effective Date of 1997 Amendment

    Amendment by Pub. L. 105-34 applicable to taxable years of United 
States persons beginning after Dec. 31, 1997, and to taxable years of 
foreign corporations ending with or within such taxable years of United 
States persons, see section 1124 of Pub. L. 105-34, set out as a note 
under section 532 of this title.


                    Effective Date of 1988 Amendment

    Section 1012(bb)(1)(D) of Pub. L. 100-647 provided that: ``The 
amendments made by this paragraph [amending this section and section 552 
of this title] shall apply to taxable years of foreign corporations 
beginning after December 31, 1986.''


                    Effective Date of 1986 Amendment

    Amendment by section 1235(e) of Pub. L. 99-514 applicable to taxable 
years of foreign corporations beginning after Dec. 31, 1986, see section 
1235(h) of Pub. L. 99-514, set out as an Effective Date note under 
section 1291 of this title.
    Amendment by section 1810(h)(2) of Pub. L. 99-514 effective, except 
as otherwise provided, as if included in the provisions of the Tax 
Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment 
relates, see section 1881 of Pub. L. 99-514, set out as a note under 
section 48 of this title.


                    Effective Date of 1984 Amendment

    Section 132(d)(1) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(A) In general.--Except as provided in subparagraph (B), the 
amendments made by subsections (a) and (b) [amending this section and 
section 554 of this title] shall apply to taxable years of foreign 
corporations beginning after December 31, 1983.
    ``(B) 1-year extension for certain trusts created before june 30, 
1953.--
        ``(i) In general.--The amendment made by subsection (b) 
    [amending this section] shall apply to taxable years of a foreign 
    corporation beginning after December 31, 1984, with respect to stock 
    of such corporation which is held (directly or indirectly, within 
    the meaning of section 554 of the Internal Revenue Code of 1986 
    [formerly I.R.C. 1954]) by a trust created before June 30, 1953, 
    if--
            ``(I) none of the beneficiaries of such trust was a citizen 
        or resident of the United States at the time of its creation or 
        within 5 years thereafter, and
            ``(II) such trust does not, after July 1, 1983, acquire 
        (directly or indirectly) stock of any foreign personal holding 
        company other than a company described in clause (ii).
        ``(ii) Description of company.--A company is described in this 
    clause if--
            ``(I) substantially all of the assets of such company are 
        stock or assets previously held by such trust, or
            ``(II) such company ceases to be a foreign personal holding 
        company before January 1, 1985.''


                    Effective Date of 1976 Amendment

    Amendment by Pub. L. 94-455 applicable with respect to 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 of 1964 Amendment

    Amendment by Pub. L. 88-272 applicable to distributions made in any 
taxable year of the distributing corporation beginning after Dec. 31, 
1963, see section 225(l) of Pub. L. 88-272, set out as a note under 
section 316 of this title.


           Plan Amendments Not Required Until January 1, 1989

    For provisions directing that if any amendments made by subtitle A 
or subtitle C of title XI [Secs. 1101-1147 and 1171-1177] or title XVIII 
[Secs. 1800-1899A] of Pub. L. 99-514 require an amendment to any plan, 
such plan amendment shall not be required to be made before the first 
plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. 
L. 99-514, as amended, set out as a note under section 401 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 563, 898, 904, 951, 989, 
1016, 1291, 1294, 6103, 6501 of this title.
