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Title 26, Internal Revenue CodeRelease 119-110

§1294 Election to Extend Time for Payment of Tax on Undistributed Earnings

Title 26 › Subtitle A — Income Taxes › CHAPTER 1 — NORMAL TAXES AND SURTAXES › Subchapter P — Capital Gains and Losses › PART VI — TREATMENT OF CERTAIN PASSIVE FOREIGN INVESTMENT COMPANIES › Subpart B — Treatment of Qualified Electing Funds › § 1294

Last updated Sep 22, 2026|Official source

Summary

You can choose to delay paying the tax on undistributed earnings from a Passive Foreign Investment Company (PFIC) for a year, but only under the limits in this rule. You cannot make that choice for PFIC earnings if any of those amounts are already included in your income under section 951 for the same year. You must make the choice by the time your tax return is due, including any extensions. Undistributed PFIC earnings tax liability: the extra tax you owe because undistributed PFIC earnings were added to your income. Undistributed earnings: the portion of a qualified electing fund’s income that is added to your income after subtracting amounts excluded under section 1293(c). The delay ends if a distribution is treated as not taxable under section 1293(c) — then the delay stops on the regular due date for that year’s return. Distributions are treated as coming from the most recent earnings first. If the PFIC stock is transferred or the fund stops being a qualified electing fund, the delay ends on the regular return due date for the year of transfer or change, unless special non‑recognition rules apply and the buyer takes over the seller’s position. The IRS can end the delay immediately if it thinks collection is at risk and demand payment. A bond or similar security may be required under section 6165, loans from the fund to a shareholder count as distributions, and interest during the extension is handled under section 6601.

Full Legal Text

Title 26, §1294

Internal Revenue Code, Source: USLM XML via OLRC

(a)Extension allowed by election
(1)In general
At the election of the taxpayer, the time for payment of any undistributed PFIC earnings tax liability of the taxpayer for the taxable year shall be extended to the extent and subject to the limitations provided in this section.
(2)Election not permitted where amounts otherwise includible under section 951
The taxpayer may not make an election under paragraph (1) with respect to the undistributed PFIC earnings tax liability attributable to a qualified electing fund for the taxable year if any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year.
(b)Definitions
For purposes of this section
(1) Undistributed PFIC earnings tax liability
(2)Undistributed earnings
The term “undistributed earnings” means, with respect to any qualified electing fund, the excess (if any) of— (A)
(B)the amount not includible in gross income by reason of section 1293(c) for such taxable year.
(c)Termination of extension
(1)Distributions
(A)In general
If a distribution is not includible in gross income for the taxable year by reason of section 1293(c), then the extension under subsection (a) for payment of the undistributed PFIC earnings tax liability with respect to the earnings to which such distribution is attributable shall expire on the last date prescribed by law (determined without regard to extensions) for filing the return of tax for such taxable year.
(B)Ordering rule
For purposes of subparagraph (A), a distribution shall be treated as made from the most recently accumulated earnings and profits.
(2)Transfers, etc.
If—
(A)stock in a passive foreign investment company is transferred during the taxable year, or
(B)a passive foreign investment company ceases to be a qualified electing fund,
all extensions under subsection (a) for payment of undistributed PFIC earnings tax liability attributable to such stock (or, in the case of such a cessation, attributable to any stock in such company) which had not expired before the date of such transfer or cessation shall expire on the last date prescribed by law (determined without regard to extensions) for filing the return of tax for the taxable year in which such transfer or cessation occurs. To the extent provided in regulations, the preceding sentence shall not apply in the case of a transfer in a transaction with respect to which gain or loss is not recognized (in whole or in part), and the transferee in such transaction shall succeed to the treatment under this section of the transferor.
(3)Jeopardy
If the Secretary believes that collection of an amount to which an extension under this section relates is in jeopardy, the Secretary shall immediately terminate such extension with respect to such amount, and notice and demand shall be made by him for payment of such amount.
(d)Election
The election under subsection (a) shall be made not later than the time prescribed by law (including extensions) for filing the return of tax imposed by this chapter for the taxable year.
(e)Authority to require bond
section 6165 shall apply to any extension under this section as though the Secretary were extending the time for payment of the tax.
(f)Treatment of loans to shareholder
For purposes of this section and section 1293, any loan by a qualified electing fund (directly or indirectly) to a shareholder of such fund shall be treated as a distribution to such shareholder.
(g)Cross reference
For provisions providing for interest for the period of the extension under this section, see section 6601.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2004—Subsec. (a)(2). Pub. L. 108–357 amended heading and text of par. (2) generally. Prior to amendment, text read as follows: “The taxpayer may not make an election under paragraph (1) with respect to the undistributed PFIC earnings tax liability attributable to a qualified electing fund for the taxable year if— “(A) any amount is includible in the gross income of the taxpayer under section 551 with respect to such fund for such taxable year, or “(B) any amount is includible in the gross income of the taxpayer under section 951 with respect to such fund for such taxable year.” 1988—Subsec. (c)(2). Pub. L. 100–647, § 1012(p)(4), (34), substituted “Transfers” for “Dispositions” in heading and “is transferred” for “is disposed of” in subpar. (A), and in closing provisions substituted “such transfer” for “such disposition” in two places and inserted at end “To the extent provided in

Regulations

, the preceding sentence shall not apply in the case of a transfer in a transaction with respect to which gain or loss is not recognized (in whole or in part), and the transferee in such transaction shall succeed to the treatment under this section of the transferor.” Subsec. (f). Pub. L. 100–647, § 1012(p)(25), added subsec. (f). Subsec. (g). Pub. L. 100–647, § 1012(p)(8), added subsec. (g).

Statutory Notes and Related Subsidiaries

Effective Date

of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years of foreign corporations beginning after Dec. 31, 2004, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end, see section 413(d)(1) of Pub. L. 108–357, set out as an Effective and Termination Dates of 2004

Amendments

note under section 1 of this title.

Effective Date

of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date

Section applicable to taxable years of foreign corporations beginning after Dec. 31, 1986, see section 1235(h) of Pub. L. 99–514, set out as a note under section 1291 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 1294

Title 26, Internal Revenue Code

Last Updated

Sep 22, 2026

Release point: 119-110