§551. Foreign personal holding company income taxed to United States shareholders

(a) General rule

The undistributed foreign personal holding company income of a foreign personal holding company shall be included in the gross income of the citizens or residents of the United States, domestic corporations, domestic partnerships, and estates or trusts (other than foreign estates or trusts), who are shareholders in such foreign personal holding company (hereinafter called "United States shareholders") in the manner and to the extent set forth in this part.

(b) Amount included in gross income

Each United States shareholder, who was a shareholder on the day in the taxable year of the company which was the last day on which a United States group (as defined in section 552(a)(2)) existed with respect to the company, shall include in his gross income, as a dividend, for the taxable year in which or with which the taxable year of the company ends, the amount he would have received as a dividend (determined as if any distribution in liquidation actually made in such taxable year had not been made) if on such last day there had been distributed by the company, and received by the shareholders, an amount which bears the same ratio to the undistributed foreign personal holding company income of the company for the taxable year as the portion of such taxable year up to and including such last day bears to the entire taxable year.

(c) Information in return

Every United States shareholder who is required under subsection (b) to include in his gross income any amount with respect to the undistributed foreign personal holding company income of a foreign personal holding company and who, on the last day on which a United States group existed with respect to the company, owned 5 percent or more in value of the outstanding stock of such company, shall set forth in his return in complete detail the gross income, deductions and credits, taxable income, foreign personal holding company, and undistributed foreign personal holding company income of such company.

(d) Effect on capital account of foreign personal holding company

An amount which bears the same ratio to the undistributed foreign personal holding company income of the foreign personal holding company for its taxable year as the portion of such taxable year up to and including the last day on which a United States group existed with respect to the company bears to the entire taxable year, shall, for the purpose of determining the effect of distributions in subsequent taxable years by the corporation, be considered as paid-in surplus or as a contribution to capital, and the accumulated earnings and profits as of the close of the taxable year shall be correspondingly reduced, if such amount or any portion thereof is required to be included as a dividend, directly or indirectly, in the gross income of United States shareholders.

(e) Basis of stock in hands of shareholders

The amount required to be included in the gross income of a United States shareholder under subsection (b) shall, for the purpose of adjusting the basis of his stock with respect to which the distribution would have been made (if it had been made), be treated as having been reinvested by the shareholder as a contribution to the capital of the corporation; but only to the extent to which such amount is included in his gross income in his return, increased or decreased by any adjustment of such amount in the last determination of the shareholder's tax liability, made before the expiration of 6 years after the date prescribed by law for filing the return.

(f) Stock held through foreign entity

For purposes of this section, stock of a foreign personal holding company owned (directly or through the application of this subsection) by-

(1) a foreign partnership or an estate or trust which is a foreign estate or trust, or

(2) a foreign corporation which is not a foreign personal holding company,

shall be considered as being owned proportionately by its partners, beneficiaries, or shareholders. In any case to which the preceding sentence applies, the Secretary may by regulations provide that rules similar to the rules of section 1297(b)(5) shall apply, and provide for such other adjustments in the application of this subchapter as may be necessary to carry out the purposes of this subsection.

(g) Coordination with passive foreign investment company provisions

If, but for this subsection, an amount would be included in the gross income of any person under subsection (a) and under section 1293 (relating to current taxation of income from certain passive foreign investment companies), such amount shall be included in the gross income of such person only under subsection (a).

(h) Cross references

(1) For basis of stock or securities in a foreign personal holding company acquired from a decedent, see section 1014(b)(5).

(2) For period of limitation on assessment and collection without assessment, in case of failure to include in gross income the amount properly includible therein under subsection (b), see section 6501.

(Aug. 16, 1954, ch. 736, 68A Stat. 193 ; Feb. 26, 1964, Pub. L. 88–272, title II, §225(f)(4), 78 Stat. 88 ; Oct. 4, 1976, Pub. L. 94–455, title XIX, §1901(a)(79), (b)(1)(F)(i), (12)(A), 90 Stat. 1777 , 1790, 1795; July 18, 1984, Pub. L. 98–369, div. A, title I, §132(b), 98 Stat. 666 ; Oct. 22, 1986, Pub. L. 99–514, title XII, §1235(e), title XVIII, §1810(h)(2), 100 Stat. 2575 , 2829; Nov. 10, 1988, Pub. L. 100–647, title I, §1012(bb)(1)(A), (B), 102 Stat. 3533 .)

Amendments

1988-Subsec. (a). Pub. L. 100–647, §1012(bb)(1)(B), substituted "(other than foreign estates or trusts)" for "(other than estates or trusts the gross income of which under this subtitle includes only income from sources within the United States)".

Subsec. (f). Pub. L. 100–647, §1012(bb)(1)(A), substituted "a foreign partnership" for "a partnership, estate, or trust which is not a United States shareholder" in par. (1) and "that rules similar to the rules of section 1297(b)(5) shall apply, and provide for such other adjustments in the application of this subchapter as may be necessary to carry out the purposes of this subsection" for "for such adjustments in the application of this part as may be necessary to carry out the purposes of the preceding sentence" in last sentence.

1986-Subsec. (f)(1). Pub. L. 99–514, §1810(h)(2), inserted "or an estate or trust which is a foreign estate or trust".

Subsecs. (g), (h). Pub. L. 99–514, §1235(e), added subsec. (g) and redesignated former subsec. (g) as (h).

1984-Subsecs. (f), (g). Pub. L. 98–369 added subsec. (f) and redesignated former subsec. (f) as (g).

1976-Subsec. (c). Pub. L. 94–455, §1901(a)(79), (b)(1)(F)(i), struck out subsec. (c) relating to deduction for obligations of United States and its instrumentalities. Former subsec. (d) redesignated (c) and, as redesignated, substituted "foreign personal holding company income" for "foreign personal holding company" after "credits, taxable income".

Subsecs. (d), (e). Pub. L. 94–455, §1901(b)(1)(F)(i), redesignated subsecs. (d) and (e) as (c) and (d), respectively. Former subsecs. (e) and (f) redesignated (d) and (e), respectively.

Subsecs. (f), (g). Pub. L. 94–455, §§1901(b)(1)(F)(i), (b)(12)(A), redesignated subsec. (f) as (e). Former subsec. (g) redesignated (f) and, as redesignated, struck out par. (3) relating to cross reference for treatment of gain on liquidation of certain foreign personal holding companies.

1964-Subsec. (b). Pub. L. 88–272 inserted "(determined as if any distribution in liquidation actually made in such taxable year had not been made)".

Effective Date of 1988 Amendment

Section 1012(bb)(1)(D) of Pub. L. 100–647 provided that: "The amendments made by this paragraph [amending this section and section 552 of this title] shall apply to taxable years of foreign corporations beginning after December 31, 1986."

Effective Date of 1986 Amendment

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

Amendment by section 1810(h)(2) of Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.

Effective Date of 1984 Amendment

Section 132(d)(1) of Pub. L. 98–369, as amended by Pub. L. 99–514, §2, Oct. 22, 1986, 100 Stat. 2095 , provided that:

"(A) In general.-Except as provided in subparagraph (B), the amendments made by subsections (a) and (b) [amending this section and section 554 of this title] shall apply to taxable years of foreign corporations beginning after December 31, 1983.

"(B) 1-year extension for certain trusts created before june 30, 1953.-

"(i) In general.-The amendment made by subsection (b) [amending this section] shall apply to taxable years of a foreign corporation beginning after December 31, 1984, with respect to stock of such corporation which is held (directly or indirectly, within the meaning of section 554 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) by a trust created before June 30, 1953, if-

"(I) none of the beneficiaries of such trust was a citizen or resident of the United States at the time of its creation or within 5 years thereafter, and

"(II) such trust does not, after July 1, 1983, acquire (directly or indirectly) stock of any foreign personal holding company other than a company described in clause (ii).

"(ii) Description of company.-A company is described in this clause if-

"(I) substantially all of the assets of such company are stock or assets previously held by such trust, or

"(II) such company ceases to be a foreign personal holding company before January 1, 1985."

Effective Date of 1976 Amendment

Amendment by Pub. L. 94–455 applicable with respect to taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94–455, set out as a note under section 2 of this title.

Effective Date of 1964 Amendment

Amendment by Pub. L. 88–272 applicable to distributions made in any taxable year of the distributing corporation beginning after Dec. 31, 1963, see section 225(l) of Pub. L. 88–272, set out as a note under section 316 of this title.

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.

Cross References

Adjustments to basis, see section 1016 of this title.

Section Referred to in Other Sections

This section is referred to in sections 563, 898, 904, 951, 989, 1016, 1291, 1294, 6103, 6501 of this title.