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Title 26 — Internal Revenue CodeRelease 119-73not60

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

Title 26 › Subtitle 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 Apr 5, 2026|Official source

Summary

You can choose to delay paying the extra tax that comes from undistributed earnings of a passive foreign investment company (PFIC), but only if you follow certain rules. You cannot choose the delay for PFIC amounts tied to a qualified electing fund (QEF) if any part of that fund’s income is included in your income under section 951. You must make the election by the due date for your tax return (including any extensions). If a distribution is not included in income under section 1293(c), the delay ends on the last date normally allowed for filing the return for that year (ignoring extensions). Distributions are treated as coming from the most recently accumulated earnings. The delay also ends if the PFIC stock is transferred during the year, if the PFIC stops being a QEF, or if the IRS thinks collecting the tax is in danger; the IRS will then end the delay and demand payment. Undistributed PFIC earnings tax liability: the extra tax you owe because of undistributed PFIC earnings. Undistributed earnings: the part of QEF income included under section 1293(a) minus amounts excluded under section 1293(c). Special rules apply: section 6165 rules for extending payment apply here, any loan from a QEF to a shareholder counts as a distribution, and interest for the delay is figured under section 6601.

Full Legal Text

Title 26, §1294

Internal Revenue Code — Source: USLM XML via OLRC

(a)(1)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)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)For purposes of this section—
(1)The term “undistributed PFIC earnings tax liability” means, in the case of any taxpayer, the excess of—
(A)the tax imposed by this chapter for the taxable year, over
(B)the tax which would be imposed by this chapter for such year without regard to the inclusion in gross income under section 1293 of the undistributed earnings of a qualified electing fund.
(2)The term “undistributed earnings” means, with respect to any qualified electing fund, the excess (if any) of—
(A)the amount includible in gross income by reason of section 1293(a) for the taxable year, over
(B)the amount not includible in gross income by reason of section 1293(c) for such taxable year.
(c)(1)(A)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)For purposes of subparagraph (A), a distribution shall be treated as made from the most recently accumulated earnings and profits.
(2)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,
(3)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)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)section 6165 shall apply to any extension under this section as though the Secretary were extending the time for payment of the tax.
(f)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)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

Apr 5, 2026

Release point: 119-73not60