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"Passive income" means, for these purposes, "any income which is of a kind which would be foreign personal holding company income as defined in [] 954(c)." The PFIC rules, however, exclude from the definition of "passive income" certain income earned in the active conduct of a banking business or insurance business.

Under 1297(c), a look-through provision treats a foreign corporation that owns at least 25% by value of the stock of another corporation as owning its proportionate share of the assets and of the income of the other corporation. shareholder of a PFIC may be subject to one of three alternative taxing regimes: the Excess Distribution regime, the Qualified Electing Fund (QEF) regime, or the 1296 Mark-to-Market (MTM) regime.

This provision permits a holding company to escape classification as a PFIC by looking through to the assets and income of its operating subsidiaries. The latter two regimes are elective and more taxpayer-favorable. Merrick's recent statement, the IRS has issued several significant PFIC rulings in the past few years addressing a number of complex, heretofore unresolved issues. 19, 1997), Corporation A, a foreign corporation with U. shareholders, indirectly held a greater than 25% interest in the value of Corporation B, a foreign corporation actively engaged in Business B.

The direct shareholder of Corporation B, a wholly owned indirect subsidiary of Corporation A, was sold to an unrelated third party, along with certain loan amounts due, for cash.

The PFIC regime is increasingly becoming relevant as to many different provisions of the Internal Revenue Code, including (1) qualifying dividend income as described under 1(h)(11); (2) related person deductions under 267(a)(3)(B); (3) the application of grantor trust rules under 672(f); and (4) the constructive ownership rules of 1260.

Additionally, several legislative proposals aim at increasing information reporting requirements relating to PFIC interests.

Altogether PFIC guidance is increasingly becoming more imperative with the passage of time.

A PFIC is defined as any foreign corporation (the Tested Foreign Corporation) if, for the taxable year, (1) 75% or more of its gross income is passive income (the PFIC Income Test) or (2) at least 50% of its assets is held for the production of passive income (the PFIC Asset Test).

Consequently, the IRS concluded that 1291(a) applied to impose on the U. beneficiaries PFIC tax and interest charges on the gain from the liquidation of the foreign corporation stock, which was treated as a disposition of the PFIC stock. 23, 2007), X, a holding company formed to invest, through certain subsidiaries, in fixed income assets consisting primarily of commercial mortgage-backed securities, residential mortgage-backed securities, corporate securities, consumer and commercial asset-backed securities, loans, and trust preferred securities. Numerous rulings have been issued by the IRS in recent years while no regulations, either proposed or temporary, have been issued.The only other guidance has been to modify the PFIC reporting requirements in response to a comment.On July 22, 2009, John Merrick, Special Counsel to the IRS Associate Chief Counsel (International), spoke at the International Fiscal Association USA Branch meeting in New York. Merrick indicated, in part, that the IRS had adopted an ad hoc strategy of providing guidance through private letter rulings (PLR's) rather than taking on big regulations projects.One area in which this new policy is unfolding is with respect to the passive foreign investment company (PFIC) regime.

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