Generally, a U.S. person that owns stock in a PFIC, directly or indirectly, may make Election A to treat the PFIC as a QEF.

For more information on who may make the election, see Regulations section 1.1295-1(d).

Generally, a shareholder must make the election to be treated as a QEF by the due date, including extensions, for filing the shareholder's income tax return for the first taxable year to which the election will apply (the “election due date”). See Retroactive election below for exceptions. The foreign corporation will be treated as a QEF with respect to the shareholder for the taxable year in which the election is made and for each subsequent tax year of the foreign corporation ending with or within a taxable year of the shareholder for which the election is effective. For more information on making a retroactive election, see Regulations section 1.1295-3.

For rules relating to the invalidation, termination, or revocation of a section 1295 election, see Regulations section 1295-1(i). Also see Regulations section 1.1295-1(c)(2) for rules relating to the years to which a section 1295 election applies.

For the tax year in which the section 1295 election is made, the shareholder must do the following.

For each subsequent tax year in which the election applies and the corporation is treated as a QEF, the shareholder must:

This election may be made by a U.S. person that elects to treat a PFIC as a QEF for a foreign corporation's tax year following its first tax year as a PFIC included in the shareholder's holding period (an unpedigreed QEF). A shareholder making this election is deemed to have sold the PFIC stock as of the first day of the PFIC's first tax year as a QEF (the qualification date) for its fair market value.

For purposes of this election, the following apply.

This election must be made by the due date, including extensions, of the shareholder's original tax return (or by filing an amended return within 3 years of the due date) for the tax year that includes the qualification date. However, see Form 8621-A if the 3-year period has expired.

To make this election:

For more information regarding making Election B, see Regulations section 1.1291-10.

This election may be made by a U.S. person that elects to treat a PFIC that is also a CFC as a QEF for the foreign corporation's tax year following its first tax year as a PFIC included in the shareholder's holding period (an unpedigreed QEF).

A shareholder making this election is treated as receiving a dividend of its pro rata share of the post-1986 earnings and profits (defined below) of the PFIC on the qualification date (defined under the instructions for Election B above). The deemed dividend is taxed as an excess distribution, allocated only to the days in the shareholder's holding period during which the foreign corporation qualified as a PFIC. For this purpose, the shareholder's holding period ends on the day before the qualification date.

For purposes of this election, the following apply.

This election must be made by the due date (including extensions), of the shareholder's original tax return (or by filing an amended return within 3 years of the due date) for the tax year that includes the qualification date. However, see Form 8621-A if the 3-year period has expired.

To make this election:

For more information on making Election C, see Regulations section 1.1291-9.

A shareholder of a QEF may make Election D to extend the time for payment of the tax on its share of the undistributed earnings of the fund for the current tax year. If a U.S. partnership is a shareholder of a QEF, the election is made at the partner level.

Generally, this election must be made by the due date, including extensions, of the shareholder's tax return for the tax year for which the shareholder reports the income related to the deferred tax.

To make this election:

This election may be made by:

This election is made either:

To make this election:

See Part V for annual reporting requirements for outstanding section 1294 elections.

Election F may be made by:

For more information, see section 1296 and Regulations section 1.1296-1. See sections 1296(f) and (g) and Regulations sections 1.1296-1(e) and (h)(1)(ii) for information regarding stock owned through certain foreign entities.

This election must be made on or before the due date (including extensions) of the U.S. person's income tax return for the tax year in which the stock is marked to market. A section 1296 election by a CFC is made by its controlling shareholders. For more information, see Regulations section 1.1296-1(h)(1)(ii). Once made, the election applies to all subsequent tax years unless the election is revoked or terminated pursuant to Regulations section 1.1296-1(h)(3).

To make the election:

Lines 1a and 2a.   Enter on lines 1a and 2a, respectively, your pro rata share of the ordinary earnings and net capital gain of the QEF. The PFIC should provide these amounts or information that will help you determine your pro rata share. See Annual Election Requirements of the PFIC or Intermediary on page 3.

Lines 1b and 2b.   Your share of the ordinary earnings and net capital gain of the QEF is reduced by the amounts you include in income under section 551 or 951 for the tax year with respect to the QEF. Your share of these amounts may also be reduced as provided in section 1293(g).

Line 1c.   This amount is treated as an ordinary dividend on your tax return.

  For individuals, include this amount in the total on Form 1040, line 9a. For corporations, include this amount in the total on Form 1120, Schedule C, line 13.

Line 2c.    See the instructions for the Schedule D used for your tax return. Portions of the net capital gain may have to be reported on different lines of Schedule D, depending upon the information provided by the QEF concerning the section 1(h) categories of net capital gains and amounts thereof, derived by the QEF. See Regulations section 1.1293-1(a)(2) for 3 options a QEF may use to report and calculate capital gain.

Line 4a.   Enter the total tax on your total taxable income (including your share of undistributed earnings of the QEF) for the tax year (e.g., from Form 1120, Schedule J, line 10, or Form 1040, line 63).

  For this purpose, “undistributed earnings” is the excess, if any, of the amount included in gross income under section 1293(a) over the sum of the amount of any distribution and the portion of the amount attributable to stock in the QEF that you transferred or otherwise disposed of before the end of the QEF's tax year.

Line 4b.   Calculate your total tax as if your total taxable income did not include your share of the undistributed earnings of the QEF (line 3e). Enter this amount on line 4b.

Line 4c.   For corporations, enter this tax on Form 1120, Schedule J, in brackets to the left of the entry space for line 10. Subtract that amount from the total of lines 7 through 9 and enter the difference on line 10.

  For individuals, enter this tax on Form 1040 in brackets to the left of the entry space for line 63. Subtract that amount from the total of lines 57 through 62, and enter the difference on line 63.

Line 9.    Corporations and individuals should include the gain or (loss) on the “other income” line of their tax returns. Other entities should include this amount on the comparable line of their tax return.

   If a CFC makes a mark-to-market election with respect to a PFIC in which it owns stock, any line 9 gain is treated as foreign personal holding company income and any line 9 loss is treated as a deduction that is allocable to foreign personal holding company income.

  For more information relating to mark-to-market elections under section 1296, see Regulations sections 1.1296-1 and 1.1296-2.

Enter your total distributions from the section 1291 fund with respect to the applicable stock for the periods indicated.

Line 10a.   If the holding period of the applicable stock began in the current year, there is no excess distribution and Part IV should be completed as follows: Enter on line 10a the total distributions you received from the section 1291 fund with respect to that stock during the current tax year. If you did not dispose of that stock during the tax year, do not complete the rest of Part IV. If you did dispose of that stock during the tax year, skip lines 10b through 10e and complete lines 10f and 11.

  If the holding period of the applicable stock began in the current tax year, the line 10a amount is taxed according to the rules of section 301. To the extent that section 301(c)(1) is applicable, include the amount as a dividend on your income tax return. For corporations, include this amount on Form 1120, Schedule C, line 13. For individuals, include this line 10a amount on Form 1040, line 9a (and, if applicable, on Schedule B (Form 1040), line 5).

Divide the amount on line 10b by 3. If the number of tax years in your holding period preceding the current tax year is less than 3, divide the amount on line 10b by that number.'>

Nonexcess distribution.    The nonexcess distribution is the lesser of line 10a or line 10d. This amount is taxed according to the rules of section 301. To the extent that section 301(c)(1) is applicable, include the amount as a dividend on your income tax return. For corporations, include this amount on Form 1120, Schedule C, line 13. For individuals, include this amount on Form 1040, line 9a (and, if applicable, on Schedule B (Form 1040), line 5).

Excess distributions.   If you received more than one distribution during the tax year with respect to the applicable stock, the excess distribution is apportioned among all actual distributions. Each apportioned amount is treated as a separate excess distribution.

Gain recognized on the disposition of stock of a section 1291 fund is treated as an excess distribution. Losses are not recognized. Stock of a section 1291 fund is considered disposed of if it is sold, transferred, or pledged.

Determine the taxation of the excess distribution on a separate sheet and attach it to Form 8621. Divide the amount on line 10e or 10f, whichever applies, by the number of days in your holding period. The holding period of the stock is treated as ending on the date of the distribution or disposition.

Special rules apply to the holding period if:

Determine the amount allocable to each tax year in your holding period by adding the amounts allocated to the days in each such tax year. Add the amounts allocated to the pre-PFIC and current tax years. Enter the sum on line 11b.

This amount is treated as ordinary income (e.g., individuals and corporations should enter this amount on the “other income” line of their tax return).

Determine the increase in tax for each tax year in your holding period (other than the current tax year and pre-PFIC years). An increase in tax is determined for each PFIC year by multiplying the part of the excess distribution allocated to each year (as determined on line 11a) by the highest rate of tax under section 1 or section 11, whichever applies, in effect for that tax year. Add the increases in tax computed for all years. Enter the aggregate increases in tax (before credits) on line 11c.

To figure the foreign tax credit, the shareholder of a section 1291 fund figures the total creditable foreign taxes attributable to the distribution. This amount includes the direct foreign taxes paid by the shareholder on the distribution (for example, withholding taxes) and, for 10% or greater corporate shareholders, any taxes deemed paid under section 902. Both the direct and indirect foreign taxes must be creditable under general foreign tax credit principles and the shareholder must choose to claim the foreign tax credit for the current tax year.

The excess distribution taxes (the creditable foreign taxes attributable to an excess distribution) are determined by apportioning the total creditable foreign taxes between the part of the distribution that is an excess distribution and the part that is not.

The excess distribution taxes are allocated in the same manner as the excess distribution is allocated. See Excess distributions on page 2. Those taxes allocated to pre-PFIC tax years and the current tax year are taken into account for the current tax year under the general rules of the foreign tax credit.

The excess distribution taxes allocated to a PFIC year only reduce the increase in tax figured for that tax year (but not below zero). No carryover of any unused excess distribution taxes is allowed.

When you dispose of PFIC stock, the above foreign tax credit rules apply only to the part of the gain that, without regard to section 1291, would be treated under section 1248 as a dividend.

This amount is the aggregate increase in tax and is included on your tax return as additional taxes.

For individuals, enter this amount on Form 1040 to the left of the line 44 entry space. Enter “Sec. 1291” next to the amount and include the amount as part of the total for line 44.

For corporations, enter this amount on Form 1120, Schedule J, to the left of the entry space for line 2. Enter “Sec. 1291” next to the amount and include it as part of the total for line 2. Other entities should use the comparable line on their income tax return.

Interest is charged on each net increase in tax for the period beginning on the due date (without regard to extensions) of your income tax return for the tax year to which an increase in tax is attributable and ending with the due date (without regard to extensions) of your income tax return for the tax year of the excess distribution.

For individuals, enter the interest at the bottom right margin of Form 1040, page 1 and label it as “Sec. 1291 interest.” Include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the refund by the interest due.

For corporations, enter this interest at the bottom right margin of Form 1120, page 1, and label it as “Sec. 1291 interest.” Include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the refund by the interest due.

Line 1.   Enter the last day of each tax year for which you made a section 1294 election that is outstanding. Do not include an election made in the current tax year.

Line 2.   Enter the undistributed earnings of the QEF for which the payment of tax was extended by the section 1294 election entered on line 1. If the election was partially terminated in a prior year, enter the remaining undistributed earnings.

Line 3.   Enter the tax for which payment was extended by the section 1294 election entered on line 1. If the election was partially terminated in a previous tax year, enter the balance of the deferred tax.

Line 4.   Enter the accrued interest (determined under section 6621) on the deferred tax. This is the interest accrued from the due date (not including extensions) of the return for the year for which the section 1294 election was made until the date the current year's return is filed.

Line 5.   Enter the event(s) that occurred during the tax year that terminated one or more of the section 1294 elections reported on line 1. A section 1294 election may be terminated voluntarily. However, an election will terminate automatically, in whole or in part, when any of the following events occur:

Line 6.   Enter the earnings distributed or deemed distributed as a result of the events described on line 5. Earnings are treated as distributed out of the most recently accumulated earnings and profits. Accordingly, an event will first terminate the most recently made election.

  An election may be terminated in whole or in part depending on the event causing the termination. Examples are as follows.

  For more information, see Regulations section 1.1294-1T(e).

Line 7.   Enter the deferred tax due from the termination of the section 1294 election. The deferred tax entered on line 3 is due if the election was completely terminated. If the election was only partially terminated, a proportionate amount of the deferred tax is due. That amount is determined by multiplying the amount entered on line 3 by a fraction, of which the numerator is the amount entered on line 6 and the denominator is the amount entered on line 2. The deferred tax is due by the due date of the shareholder's income tax return (without regard to extensions) for the year of termination.

  When the election is terminated, corporations include the deferred tax as part of the total for Form 1120, Schedule J, line 10. Also enter the deferred tax to the left of line 10 and label it as “Sec. 1294 deferred tax.”

  For individuals, enter the deferred tax as part of the total for Form 1040, line 63. Also enter the deferred tax to the left of line 63, and label it as “Sec. 1294 deferred tax.”

Line 8.   Enter the interest accrued on the deferred tax. Interest accrues beginning on the due date (without regard to extensions) of your tax return for the tax year in which the section 1294 election is made, and ending with the due date (without regard to extensions) of your tax return for the tax year of the termination. Interest is computed using the rates and methods under section 6621.

   For corporations, enter the amount of section 1294 interest at the bottom right margin of Form 1120, page 1 and label it as “Sec. 1294 interest.” Also include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the refund by the interest due.

  For individuals, enter the interest from line 8 at the bottom right margin of Form 1040, page 1, and label it as “Sec. 1294 interest.” Also include this amount in your check or money order payable to the United States Treasury. If you would otherwise receive a refund, reduce the amount of the refund by the amount of interest due.

Lines 9 and 10.   Complete lines 9 and 10 only if you have partially terminated your section 1294 election. Enter on line 9 the part of the deferred tax outstanding after the partial termination of the section 1294 election. This amount should equal line 3 minus line 7.

  Enter on line 10 the accrued interest remaining after the partial termination of the section 1294 election. This amount should equal line 4 minus line 8.