§1293 Current Taxation of Income From Qualified Electing Funds

Summary

U.S. persons who own stock in a qualified electing fund must report each year their share of the fund’s earnings. They must include their part of the fund’s ordinary earnings as regular income and their part of the fund’s net capital gain as long‑term capital gain. The income is reported in the taxpayer’s year that ends with the fund’s taxable year. The owner’s share is figured as if the fund paid out each day’s portion of that year’s earnings, though the Treasury can allow a shorter period if the fund shows it uses one. If a distribution from a passive foreign investment company was already taxed to a U.S. person under these rules, that payment is treated as a non‑dividend distribution and lowers the fund’s earnings and profits, except this does not apply if the fund is a controlled foreign corporation—those cases follow the CFC rules instead. A shareholder’s tax basis in the stock is increased by amounts taxed under these rules and decreased by distributions that are not taxed for that reason. Ordinary earnings means earnings and profits minus net capital gain, and net capital gain cannot exceed earnings and profits. The Treasury will make adjustments to prevent the same income from being taxed more than once. Amounts included or excluded here are treated the same as if included or excluded under the related foreign‑income rules (for example, sections 951 and 959).