(a) In general.—This section prescribes the exclusive rules under which a shareholder, as defined in § 1.1295-1(j), may make a section 1295 election
for a taxable year after the election due date, as defined in § 1.1295-1(e) (retroactive election).
Therefore, a shareholder may not seek such relief under any other provision of the law, including
§ 301.9100 of this chapter. Paragraph (b) of this section describes the general rules for a
shareholder to preserve the ability to make a retroactive election. These rules require that the
shareholder possess reasonable belief as of the election due date that the foreign corporation was
not a PFIC for its taxable year that ended in the shareholder’s taxable year to which the election
due date pertains, and that the shareholder file a Protective Statement to preserve its ability to
make a retroactive election. Paragraph (c) of this section establishes the terms, conditions and
other requirements with respect to a Protective Statement required to be filed under the general
rules. Paragraph (d) of this section sets forth factors that establish a shareholder’s reasonable
belief that a foreign corporation was not a PFIC. Paragraph (e) of this section prescribes special
rules for certain shareholders that are deemed to satisfy the reasonable belief requirement and
therefore are not required to file a Protective Statement. Paragraph (f) of this section describes
the limited circumstances under which the Commissioner may permit a shareholder that lacked
the requisite reasonable belief or failed to satisfy the requirements of paragraph (b) or (e) of this
section to make a retroactive election. Paragraph (g) of this section provides the time for and
manner of making a retroactive election. Paragraph (h) of this section provides the effective date
of this section.

(b) General rule.—Except as provided in paragraphs (e) and (f) of this section, a shareholder
may make a retroactive election for a taxable year of the shareholder (retroactive election year)
only if the shareholder—

(1) Reasonably believed, within the meaning of paragraph (d) of this section, that as of
the election due date, as defined in § 1.1295-1(e), the foreign corporation was not a PFIC for its
taxable year that ended during the retroactive election year;

(2) Filed a Protective Statement with respect to the foreign corporation, applicable to the
retroactive election year, in which the shareholder described the basis for its reasonable belief and
extended, in the manner provided in paragraph (c)(4) of this section, the periods of limitations on
the assessment of taxes determined under sections 1291 through 1298 with respect to the foreign
corporation (PFIC related taxes) for all taxable years of the shareholder to which the Protective
Statement applies; and

(3) Complied with the other terms and conditions of the Protective Statement.

(c) Protective Statement.—

(1) In general.—A Protective Statement is a statement executed
under penalties of perjury by the shareholder, or a person authorized to sign a federal income tax
return on behalf of the shareholder, that preserves the shareholder’s ability to make a retroactive
election. To file a Protective Statement that applies to a taxable year of the shareholder, the
shareholder must reasonably believe as of the election due date that the foreign corporation was
not a PFIC for the foreign corporation’s taxable year that ended during the retroactive election
year. The Protective Statement must contain—

(i) The shareholder’s reasonable belief statement, as described in paragraph (c)(2)
of this section;

(ii) The shareholder’s agreement extending the periods of limitations on the assessment of PFIC related taxes for all taxable years to which the Protective Statement applies, as
provided in paragraph (c)(4) of this section; and

(iii) The following information and representations—

(A) The shareholder’s name, address, taxpayer identification number, and the
shareholder’s first taxable year to which the Protective Statement applies;

(B) The foreign corporation’s name, address, and taxpayer identification number, if any; and

(C) The highest percentage of shares of each class of stock of the foreign corporation held directly or indirectly by the shareholder during the shareholder’s first taxable
year to which the Protective Statement applies.

(2) Reasonable belief statement.—The Protective Statement must contain a reasonable
belief statement, as described in paragraph (c)(1) of this section. The reasonable belief statement
is a description of the shareholder’s basis for its reasonable belief that the foreign corporation was
not a PFIC for its taxable year that ended with or within the shareholder’s first taxable year to
which the Protective Statement applies. If the Protective Statement applies to a taxable year or
years described in paragraph (c)(5)(ii) of this section, the reasonable belief statement must
describe the shareholder’s basis for its reasonable belief that the foreign corporation was not a
PFIC for the foreign corporation’s taxable year or years that ended in such taxable year or years of
the shareholder. The reasonable belief statement must discuss the application of the income and
asset tests to the foreign corporation and the factors, including those stated in paragraph (d) of
this section, that affect the results of those tests.

(3) Who executes and files the Protective Statement.—The person that executes and files
the Protective Statement is the person that makes the section 1295 election, as provided in
§ 1.1295-1(d).

(4) Waiver of the periods of limitations.—

(i) Time for and manner of extending periods of limitations.—

(A) In general.—A shareholder that files the Protective Statement with the Commis-
sioner must extend the periods of limitations on the assessment of all PFIC related taxes for all of
the shareholder’s taxable years to which the Protective Statement applies, as provided in this
paragraph (c)(4). The shareholder is required to execute the waiver on such form as the
Commissioner may prescribe for purposes of this paragraph (c)(4). Until that form is published,
the shareholder must execute a statement in which the shareholder agrees to extend the periods
of limitations on the assessment of all PFIC related taxes for all the shareholder’s taxable years to
which the Protective Statement applies, as provided in this paragraph (c)(4), and agrees to the
restrictions in paragraph (c)(4)(ii)(A) of this section. The shareholder or a person authorized to
sign the shareholder’s federal income tax return must sign the form or statement. A properly
executed form or statement authorized by this paragraph (c)(4) will be deemed consented to and
signed by a Service Center Director or the Assistant Commissioner (International) for purposes of
§ 301.6501(c)-1(d) of this chapter.

(B) Application of general rule to domestic partnerships.—

(1) In general.—A
domestic partnership that holds an interest in stock of a PFIC satisfies the waiver requirement of
paragraph (c)(4) of this section pursuant to the rules of this paragraph (c)(4)(i)(B)(1). The
partnership must file one or more waivers obtained or arranged under this paragraph (c)(4)(i)(B)
as part of the Protective Statement, as provided in paragraph (c)(1) of this section. The partner-
ship must either—

(i) Obtain from each partner the partner’s waiver of the periods of
limitations;

(ii) Obtain from each partner a duly executed power of attorney
under § 601.501 of this chapter authorizing the partnership to extend that partner’s periods of
limitations, and execute a waiver on behalf of the partners; or

(iii) In the case of a domestic partnership governed by the unified
audit and litigation procedures of sections 6221 through 6233 (TEFRA partnership), arrange for
the tax matters partner (or any other person authorized to enter into an agreement to extend the
periods of limitations), as provided in section 6229(b), to execute a waiver on behalf of all the
partners.

(2) Special rules.—

(i) Addition of partner to non-TEFRA partnership.—In
the case of any individual who becomes a partner in a domestic partnership other than a TEFRA
partnership (non-TEFRA partnership) in a taxable year subsequent to the year in which the
partnership filed a Protective Statement, the partner and the partnership must comply with the
rules applicable to non-TEFRA partnerships, as provided in paragraph (c)(4)(i)(B)(1) of this
section, by the due date, as extended, for the federal income tax return of the partnership for the
taxable year during which the individual became a partner. Failure to so comply will render the
Protective Statement invalid with respect to the partnership and partners.

(ii) Change in status from non-TEFRA partnership to TEFRA partnership.—If a partnership is a non-TEFRA partnership in one taxable year but becomes a TEFRA
partnership in a subsequent taxable year, the partnership must file one or more waivers obtained
or arranged under this paragraph (c)(4)(i)(B)(2)(ii), as part of the Protective Statement, as
provided in paragraph (c)(1) of this section. The partnership must either obtain from any new
partner the partner’s waiver described in this paragraph (c)(4); obtain from the new partner a duly
executed power of attorney under § 601.501 of this chapter authorizing the partnership to extend
the partner’s periods of limitations, and execute a waiver on behalf of the new partner; or arrange
for the tax matters partner (or any other person authorized to enter into an agreement to extend
the periods of limitations) to execute a waiver on behalf of all the partners. In each case, the
partnership must attach any new waiver of a partner’s periods of limitations, and a copy of the
Protective Statement to its federal income tax return for that taxable year.

(C) Application of general rule to domestic nongrantor trusts and domestic estates.—A domestic nongrantor trust or a domestic estate that holds an interest in stock of a PFIC
satisfies the waiver requirement of this paragraph (c)(4) at the entity level. For this purpose, such
entity must comply with rules similar to those applicable to non-TEFRA partnerships, as provided
in paragraph (c)(4)(i)(B)(1) of this section.

(D) Application of general rule to S corporations.—An S corporation that holds
an interest in stock of a PFIC satisfies the waiver requirement of this paragraph (c)(4) at the S
corporation level. For this purpose, the S corporation must comply with rules similar to those
applicable to non-TEFRA partnerships, as provided in paragraph (c)(4)(i)(B)(1) of this section.
However, in the case of an S corporation that was governed by the unified audit corporate
proceedings of sections 6241 through 6245 for any taxable year to which a Protective Statement
applies (former TEFRA S corporation), the tax matters person (or any other person authorized to
enter into such an agreement), as was provided in sections 6241 through 6245, may execute a
waiver described in this paragraph (c)(4) that applies to such taxable year; for any other taxable
year, the former TEFRA S corporation must comply with rules similar to those applicable to non-TEFRA partnerships.

(E) Effect on waiver of complete termination of a pass through entity or pass
through entity’s business
.—The complete termination of a pass through entity described in
paragraphs (c)(4)(i)(B) through (D) of this section, or a pass through entity’s trade or business,
will not terminate a waiver that applies to a partner, shareholder, or beneficiary.

(F) Application of general rule to foreign partnerships, foreign trusts, domestic or
foreign grantor trusts, and foreign estates
.—A U.S. person that is a partner or beneficiary of a
foreign partnership, foreign trust, or foreign estate that holds an interest in stock of a PFIC
satisfies the waiver requirement of this paragraph (c)(4) at the partner or beneficiary level. A U.S.
person that is treated under sections 671 through 679 as the owner of the portion of a domestic or
foreign trust that owns an interest in PFIC stock also satisfies the waiver requirement at the owner
level. A waiver by a partner or beneficiary applies only to that partner or beneficiary, and is not
affected by a complete termination of the entity or the entity’s trade or business.

(ii) Terms of waiver.—

(A) Scope of waiver.—The waiver of the periods of limitations
is limited to the assessment of PFIC related taxes. If the period of limitations for a taxable year
affected by a retroactive election has expired with respect to the assessment of other non-PFIC
related taxes, no adjustments, other than consequential changes, may be made by the Internal
Revenue Service or by the shareholder to any other items of income, deduction, or credit for that
year. If the period of limitations for refunds or credits for a taxable year affected by a retroactive
election is open only by virtue of the assessment period extension and section 6511(c), no refund
or credit is allowable on grounds other than adjustments to PFIC related taxes and consequential
changes.

(B) Period of waiver.—The extension of the periods of limitations on the
assessment of PFIC related taxes will be effective for all of the shareholder’s taxable years to
which the Protective Statement applies. In addition, the waiver, to the extent it applies to the
period of limitations for a particular year, will terminate with respect to that year no sooner than
three years from the date on which the shareholder files an amended return, as provided in
paragraph (g) of this section, for that year. For the suspension of the running of the period of
limitations for the collection of taxes for which a shareholder has elected under section 1294 to
extend the time for payment, as provided in paragraph (g)(3)(ii) of this section, see sections
6503(i) and 6229(h).

(5) Time of and manner for filing a Protective Statement.—

(i) In general.—Except as
provided in paragraph (c)(5)(ii) of this section, a Protective Statement must be attached to the
shareholder’s federal income tax return for the shareholder’s first taxable year to which the
Protective Statement will apply. The shareholder must file its return and the copy of the Protective
Statement by the due date, as extended under section 6081, for the return.

(ii) Special rule for taxable years ended before January 2, 1998.—A shareholder may
file a Protective Statement that applies to the shareholder’s taxable year or years that ended before
January 2, 1998, provided the period of limitations on the assessment of taxes for any such year
has not expired (open year). The shareholder must file the Protective Statement applicable to
such open year or years, as provided in paragraph (c)(5)(i) of this section, by the due date, as
extended, for the shareholder’s return for the first taxable year ending after January 2, 1998.

(6) Applicability of the Protective Statement.—

(i) In general.—Except as otherwise provided in this paragraph (c)(6), a Protective Statement applies to the shareholder’s first taxable
year for which the Protective Statement was filed and to each subsequent taxable year. The
Protective Statement will not apply to any taxable year of the shareholder during which the
shareholder does not own any stock of the foreign corporation or to any taxable year thereafter.
Accordingly, if the shareholder has not made a retroactive election with respect to the previously
owned stock by the time the shareholder reacquires stock of the foreign corporation, the
shareholder must file another Protective Statement to preserve its right to make a retroactive
election with respect to the later acquired stock. For the rule that provides that a section 1295
election made with respect to a foreign corporation applies to stock of that corporation acquired
after a lapse in ownership, see § 1.1295-1(c)(2)(iii).

(ii) Invalidity of the Protective Statement.—A shareholder will be treated as if it never
filed a Protective Statement if—

(A) The shareholder failed to make a retroactive election by the date prescribed for making the retroactive election in paragraph (g)(1) of this section; or

(B) The waiver of the periods of limitations terminates (by reason of a court
decision or other determination) with respect to any taxable year before the expiration of three
years from the date of filing of an amended return for that year pursuant to paragraph (g) of this
section.

(7) Retention of Protective Statement and information demonstrating reasonable belief.—A
shareholder that files a Protective Statement must retain a copy of the Protective Statement and its
attachments and must, for each taxable year of the shareholder to which the Protective Statement
applies, retain information sufficient to demonstrate the shareholder’s reasonable belief that the
foreign corporation was not a PFIC for the taxable year of the foreign corporation ending during
each such taxable year of the shareholder.

(d) Reasonable belief.—

(1) In general.—A foreign corporation is a PFIC for a taxable year if
the foreign corporation satisfies either the income or asset test of section 1297(a). To determine
whether a shareholder had reasonable belief that the foreign corporation is not a PFIC under
section 1297(a), the shareholder must consider all relevant facts and circumstances. Reasonable
belief may be based on a variety of factors, including reasonable asset valuations as well as
reasonable interpretations of the applicable provisions of the Code, regulations, and administrative
guidance regarding the direct or indirect ownership of the income or assets of the foreign
corporation, the proper character of that income or those assets, and similar issues. Reasonable
belief may be based on reasonable predictions regarding income to be earned and assets to be
owned in subsequent years where qualification of the foreign corporation as a PFIC for the current
taxable year will depend on the qualification of the corporation as a PFIC in a subsequent year.
Reasonable belief may be based on an analysis of generally available financial information of the
foreign corporation. To determine whether a shareholder had reasonable belief that the foreign
corporation was not a PFIC, the Commissioner may consider the size of the shareholder’s interest
in the foreign corporation.

(2) Knowledge of law required.—Reasonable belief must be based on a good faith effort to
apply the Code, regulations, and related administrative guidance. Any person’s failure to know or
apply these provisions will not form the basis of reasonable belief.

(e) Special rules for qualified shareholders.—

(1) In general.—A shareholder that is a qualified
shareholder, as defined in paragraph (e)(2) of this section, for a taxable year of the shareholder is
not required to satisfy the reasonable belief requirement of paragraph (b)(1) of this section or file
a Protective Statement to preserve its ability to make a retroactive election with respect to such
taxable year. Accordingly, a qualified shareholder may make a retroactive election for any open
taxable year in the shareholder’s holding period. The retroactive election will be treated as made
in the earliest taxable year of the shareholder during which the foreign corporation qualified as a
PFIC (including a taxable year ending prior January 2, 1998) and the shareholder will be treated
as a shareholder of a pedigreed QEF, as defined in § 1.1291-9(j)(2)(ii), provided the shareholder—

(i) Has been a qualified shareholder with respect to the foreign corporation for all

taxable years of the shareholder included in the shareholder’s holding period during which the
foreign corporation was a PFIC, or in the case of taxable years ending before January 2, 1998, the
shareholder satisfies the criteria of a qualified shareholder, for all such years; or

(ii) Has been a qualified shareholder, or in the case of taxable years ending before
January 2, 1998, satisfies the criteria of a qualified shareholder, for all taxable years in its holding
period before it filed a Protective Statement, which Protective Statement is applicable to all
subsequent years, beginning with the first taxable year in which the shareholder is not a qualified
shareholder.

(2) Qualified shareholder.—A shareholder will be treated as a qualified shareholder for a
taxable year if the shareholder did not file a Protective Statement applicable to an earlier taxable
year included in the shareholder’s holding period of the stock of the foreign corporation currently
held and—

(i) At all times during the taxable year the shareholder owned, within the meaning
of section 958, directly, indirectly, or constructively, less than two percent of the vote and value of
each class of stock of the foreign corporation; and

(ii) With respect to the taxable year of the foreign corporation ending within the
shareholder’s taxable year, the foreign corporation or U.S. counsel for the foreign corporation
indicated in a public filing, disclosure statement or other notice provided to U.S. persons that are
shareholders of the foreign corporation (corporate filing) that the foreign corporation—

(A) Reasonably believes that it is not or should not constitute a PFIC for the
corporation’s taxable year; or

(B) Is unable to conclude that it is not or should not be a PFIC (due to certain
asset valuation or interpretation issues, or because PFIC status will depend on the income or
assets of the foreign corporation in the corporation’s subsequent taxable years) but reasonably
believes that, more likely than not, it ultimately will not be a PFIC.

(3) Exceptions.—Notwithstanding paragraph (e)(2)(ii) of this section, a shareholder will
not be treated as a qualified shareholder for a taxable year of the shareholder if the shareholder
knew or had reason to know that a corporate filing regarding the foreign corporation’s PFIC status
was inaccurate, or knew that the foreign corporation was a PFIC for the taxable year of the foreign
corporation ending with or within such taxable year of the shareholder. For purposes of this
paragraph, a shareholder will be treated as knowing that a foreign corporation was a PFIC if the
principal activity of the foreign corporation, directly or indirectly, is owning or trading a diversified
portfolio of stock, securities, or other financial contracts.

(f) Special consent.—

(1) In general.—A shareholder that has not satisfied the requirements
of paragraph (b) or (e) of this section may request the consent of the Commissioner to make a
retroactive election for a taxable year of the shareholder provided the shareholder satisfies the
requirements set forth in this paragraph (f). The Commissioner will grant relief under this
paragraph (f) only if—

(i) The shareholder reasonably relied on a qualified tax professional, within the
meaning of paragraph (f)(2) of this section;

(ii) Granting consent will not prejudice the interests of the United States govern-
ment, as provided in paragraph (f)(3) of this section;

(iii) The shareholder requests consent under paragraph (f) of this section before a
representative of the Internal Revenue Service raises upon audit the PFIC status of the corporation
for any taxable year of the shareholder; and

(iv) The shareholder satisfies the procedural requirements set forth in paragraph
(f)(4) of this section.

(2) Reasonable reliance on a qualified tax professional.—

(i) In general.—Except as pro-
vided in paragraph (f)(2)(ii) of this section, a shareholder is deemed to have reasonably relied on
a qualified tax professional only if the shareholder reasonably relied on a qualified tax professional
(including a tax professional employed by the shareholder) who failed to identify the foreign
corporation as a PFIC or failed to advise the shareholder of the consequences of making, or failing
to make, the section 1295 election. A shareholder will not be considered to have reasonably relied
on a qualified tax professional if the shareholder knew, or reasonably should have known, that the
foreign corporation was a PFIC and of the availability of a section 1295 election, or knew or
reasonably should have known that the qualified tax professional—

(A) Was not competent to render tax advice with respect to the ownership of
shares of a foreign corporation; or

(B) Did not have access to all relevant facts and circumstances.

(ii) Shareholder deemed to have not reasonably relied on a qualified tax professional.—
For purposes of this paragraph (f)(2), a shareholder is deemed to have not reasonably relied on a
qualified tax professional if the shareholder was informed by the qualified tax professional that the
foreign corporation was a PFIC and of the availability of the section 1295 election and related tax
consequences, but either chose not to make the section 1295 election or was unable to make a
valid section 1295 election.

(3) Prejudice to the interests of the United States government.—

(i) General rule.—Except
as otherwise provided in paragraph (f)(3)(ii) of this section, the Commissioner will not grant
consent under paragraph (f) of this section if doing so would prejudice the interests of the United
States government. The interests of the United States government are prejudiced if granting relief
would result in the shareholder having a lower tax liability, taking into account applicable interest
charges, in the aggregate for all years affected by the retroactive election (other than by a de
minimis amount) than the shareholder would have had if the shareholder had made the section
1295 election by the election due date. The time value of money is taken into account for purposes
of this computation.

(ii) Elimination of prejudice to the interests of the United States government.—Not-
withstanding the general rule of paragraph (f)(3)(i) of this section, if granting relief would
prejudice the interests of the United States government, the Commissioner may, in the Commis-
sioner’s sole discretion, grant consent to make the election provided the shareholder enters into a
closing agreement with the Commissioner that requires the shareholder to pay an amount
sufficient to eliminate any prejudice to the United States government as a consequence of the
shareholder’s inability to file amended returns for closed taxable years.

(4) Procedural requirements.—

(i) Filing instructions.—A shareholder requests consent
under paragraph (f) of this section to make a retroactive election by filing with the Office of the
Associate Chief Counsel (International) a ruling request that includes the affidavits required by
this paragraph (f)(4). The ruling request must satisfy the requirements, including payment of the
user fee, for ruling requests filed with that office.

(ii) Affidavit from shareholder.—The shareholder, or a person authorized to sign a
federal income tax return on behalf of the shareholder, must submit a detailed affidavit describing
the events that led to the failure to make a section 1295 election by the election due date, and to
the discovery thereof. The shareholder’s affidavit must describe the engagement and responsibilities of the qualified tax professional as well as the extent to which the shareholder relied on the
tax professional. The shareholder must sign the affidavit under penalties of perjury. An individual
who signs for an entity must have personal knowledge of the facts and circumstances at issue.

(iii) Affidavits from other persons.—The shareholder must submit detailed affidavits
from individuals having knowledge or information about the events that led to the failure to make
a section 1295 election by the election due date, and to the discovery thereof. These individuals
must include the qualified tax professional upon whose advice the shareholder relied, as well as
any individual (including an employee of the shareholder) who made a substantial contribution to
the return’s preparation, and any accountant or attorney, knowledgeable in tax matters, who
advised the shareholder with regard to its ownership of the stock of the foreign corporation. Each
affidavit must describe the individual’s engagement and responsibilities as well as the advice
concerning the tax treatment of the foreign corporation that the individual provided to the
shareholder. Each affidavit also must include the individual’s name, address, and taxpayer
identification number, and must be signed by the individual under penalties of perjury.

(iv) Other information.—In connection with a request for consent under this paragraph (f), a
shareholder must provide any additional information requested by the Commissioner.

(v) Notification of Internal Revenue Service.—The shareholder must notify the
branch of the Associate Chief Counsel (International) considering the request for relief under this
paragraph (f) if, while the shareholder’s request for consent is pending, the Internal Revenue
Service begins an examination of the shareholder’s return for the retroactive election year or for
any subsequent taxable year during which the shareholder holds stock of the foreign corporation.

(vi) Who requests special consent under this paragraph (f) and who enters into a
closing agreement
.—The person that requests consent under this paragraph (f) is the person that
makes the section 1295 election, as provided in § 1.1295-1(d). If a shareholder is required to enter
into a closing agreement with the Commissioner, as described in paragraph (f)(3)(ii) of this
section, rules similar to those under paragraphs (c)(4)(i)(B) through (E) of this section apply for
purposes of determining the person that enters into the closing agreement.

(g) Time for and manner of making a retroactive election.—

(1) Time for making a retroactive election.—

(i) In general.—Except as otherwise provided in paragraph (g)(1)(ii) of this section, a
shareholder must make a retroactive election, in the manner provided in paragraph (g)(2) of this
section, on or before the due date, as extended, for the shareholder’s return—

(A) In the case of a shareholder that makes a retroactive election pursuant to
paragraph (b) or (e) of this section, for the taxable year in which the shareholder determines or
reasonably should have determined that the foreign corporation was a PFIC; or

(B) In the case of a shareholder that obtains the consent of the Commissioner
pursuant to paragraph (f) of this section, for the taxable year in which such consent is granted.

(ii) Transition rule.—A shareholder that files a Protective Statement for a taxable
year described in paragraph (c)(5)(ii) of this section may make a retroactive election by the due
date, as extended, for the return for the first taxable year ended after January 2, 1998, even if the
shareholder determined or should have determined that the foreign corporation was a PFIC for a
year described in paragraph (c)(5)(ii) of this section at any time on or before January 2, 1998.

(iii) Ownership not required at time retroactive election is made.—The shareholder
need not own shares of the foreign corporation at the time the shareholder makes a retroactive
election with respect to the foreign corporation.

(2) Manner of making a retroactive election.—A shareholder that has satisfied the
requirements of paragraph (b) or (e) of this section, or a shareholder that has been granted
consent under paragraph (f) of this section, must make a retroactive election in the manner
provided in Form 8621 for making a section 1295 election, and must attach Form 8621 to an
amended return for the later of the retroactive election year or the earliest open taxable year of the
shareholder. The shareholder also must file an amended return for each of its subsequent taxable
years affected by the retroactive election. In each amended return the shareholder must redeter-
mine its income tax liability for that year to take into account the assessment of PFIC related
taxes. If the period of limitations for the assessment of taxes for a taxable year affected by the
retroactive election has expired except to the extent the waiver of limitations, described in
paragraph (c)(4) of this section, has extended such period, no adjustments, other than conse-
quential changes, may be made to any other items of income, deduction, or credit in that year. In
addition, the shareholder must pay all taxes and interest owing by reason of the PFIC and QEF
status of the foreign corporation in those years (except to the extent a section 1294 election
extends the time to pay the taxes and interest). A shareholder that filed a Protective Statement
must attach to Form 8621 filed with each amended return a representation that the shareholder,
until the taxable year in which it determined or reasonably should have determined that the
foreign corporation was a PFIC, reasonably believed, within the meaning of paragraph (d) of this
section, that the foreign corporation was not a PFIC in the taxable year for which the amended
return is filed, and in all other taxable years to which the Protective Statement applies. A
shareholder that entered into a closing agreement must comply with the terms of that agreement,
as provided in paragraph (f)(3)(ii) of this section, to eliminate any prejudice to the United States
government’s interests, as described in paragraph (f)(3) of this section.

(3) Who makes the retroactive election.—The person that makes the retroactive election
is the person that makes the section 1295 election, as provided in § 1.1295-1(d). A partner,
shareholder, or beneficiary for which a pass through entity, as described in paragraphs
(c)(4)(i)(B) through (D) of this section, filed a Protective Statement may make a retroactive
election, if the pass through entity completely terminates its business or otherwise ceases to exist.

(4) Other elections.—

(i) Section 1291(d)(2) election.—If the foreign corporation for
which the shareholder makes a retroactive election will be treated as an unpedigreed QEF, as
defined in § 1.1291-9(j)(2)(iii), with respect to the shareholder, the shareholder may make an
election under section 1291(d)(2) to purge its holding period of the years or parts of years before
the effective date of the retroactive election. If the qualification date, within the meaning of
§ 1.1291-9(e) or 1.1291-10(e), falls in a taxable year for which the period of limitations has expired,
the shareholder may treat the first day of the retroactive election year as the qualification date.
The shareholder may make a section 1291(d)(2) election at the time that it makes the retroactive
election, but no later than two years after the date that the amended return in which the
retroactive election is made is filed. For the requirements for making a section 1291(d)(2)
election, see § § 1.1291-9 and 1.1291-10.

(ii) Section 1294 election.—A shareholder may make an election under section 1294
to extend the time for payment of tax on the shareholder’s pro rata shares of the ordinary earnings
and net capital gain of the foreign corporation reported in the shareholder’s amended return, and
section 6621 interest attributable to such tax, but only to the extent the tax and interest are
attributable to earnings that have not been distributed to the shareholder. The shareholder must
make a section 1294 election for a taxable year at the time that it files its amended return for that
year, as provided in paragraph (g)(1) of this section. For the requirements for making a section
1294 election, see § 1.1294-1T.

(h) Effective date.—The rules of this section are effective as of January 2, 1998. [Reg.
§ 1.1295-3.]

[T.D. 8750, 12-31-97. Redesignated and amended by T.D. 8870, 2-4-2000.]


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