[Sec. 1294]

SEC. 1294. ELECTION TO EXTEND TIME FOR PAYMENT OF TAX ON UNDISTRIBUTED EARNINGS

[Sec. 1294(a)]

(a) Extension Allowed by Election.—

(1) In general.—At the election of the taxpayer, the time for payment of any undistrib-
uted 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.

[Sec. 1294(b)]

(b) Definitions.—For purposes of this section—

(1) Undistributed pfic earnings tax liability.—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) Undistributed earnings.—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.

[Sec. 1294(c)]

(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 (deter-
mined 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.

[Sec. 1294(d)]

(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.

[Sec. 1294(e)]

(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.

[Sec. 1294(f)]

(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.

[Sec. 1294(g)]

(g) Cross Reference.—For provisions providing for interest for the period of the extension
under this section, see section 6601.


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