26 U.S.C. § 1297: Passive foreign investment company

75 percent or more of the gross income of such corporation for the taxable year is passive income, or the average percentage of assets (as determined in accordance with subsection (e)) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent. Except as provided in paragraph (2), the term “passive income” means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c). derived in the active conduct of a banking business by an institution licensed to do business as a bank in the United States (or, to the extent provided in regulations, by any other corporation), derived in the active conduct of an insurance business by a qualifying insurance corporation (as defined in subsection (f)), which is interest, a dividend, or a rent or royalty, which is received or accrued from a related person (within the meaning of section 954(d)(3)) to the extent such amount is properly allocable (under regulations prescribed by the Secretary) to income of such related person which is not passive income, or which is export trade income of an export trade corporation (as defined in section 971). held its proportionate share of the assets of such other corporation, and received directly its proportionate share of the income of such other corporation. For purposes of this part, a corporation shall not be treated with respect to a shareholder as a passive foreign investment company during the qualified portion of such shareholder’s holding period with respect to stock in such corporation. which is after December 31, 1997 , and during which the shareholder is a United States shareholder (as defined in section 951(b)) of the corporation and the corporation is a controlled foreign corporation. Except as provided in subparagraph (B), if the qualified portion of a shareholder’s holding period with respect to any stock ends after December 31, 1997 , solely for purposes of this part, the shareholder’s holding period with respect to such stock shall be treated as beginning as of the first day following such period. Subparagraph (A) shall not apply if such stock was, with respect to such shareholder, stock in a passive foreign investment company at any time before the qualified portion of the shareholder’s holding period with respect to such stock and no election under section 1298(b)(1) is made. Paragraph (1) shall not apply to stock treated as owned by a person by reason of section 1298(a)(4) (relating to the treatment of a person that has an option to acquire stock as owning such stock) unless such person establishes that such stock is owned (within the meaning of section 958(a)) by a United States shareholder (as defined in section 951(b)) who is not exempt from tax under this chapter. such corporation is a publicly traded corporation for the taxable year, or paragraph (2) does not apply to such corporation for the taxable year. is a controlled foreign corporation, or elects the application of this paragraph. a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this subsection. which would be subject to tax under subchapter L if such corporation were a domestic corporation, and the applicable insurance liabilities of which constitute more than 25 percent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s applicable financial statement for the last year ending with or within the taxable year. the percentage so determined for the corporation is at least 10 percent, and the corporation is predominantly engaged in an insurance business, and such failure is due solely to runoff-related or rating-related circumstances involving such insurance business. loss and loss adjustment expenses, and reserves (other than deficiency, contingency, or unearned premium reserves) for life and health insurance risks and life and health insurance claims with respect to contracts providing coverage for mortality or morbidity risks. as reported to the applicable insurance regulatory body in the applicable financial statement described in paragraph (4)(A) (or, if less, the amount required by applicable law or regulation), or as determined under regulations prescribed by the Secretary. is made on the basis of generally accepted accounting principles, is made on the basis of international financial reporting standards, but only if there is no statement that meets the requirement of clause (i), or except as otherwise provided by the Secretary in regulations, is the annual statement which is required to be filed with the applicable insurance regulatory body, but only if there is no statement which meets the requirements of clause (i) or (ii). The term “applicable insurance regulatory body” means, with respect to any insurance business, the entity established by law to license, authorize, or regulate such business and to which the statement described in subparagraph (A) is provided.