102 STAT. 3516
PUBLIC LAW 100-647—NOV. 10, 1988 "(1) IN GENERAL.—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)." (6)(A) Subsection (f) of section 1291 of the 1986 Code is amended to read as follows: "(f) RECOGNITION OF GAIN.—To the extent provided in regulations,
in the case of any transfer of stock in a passive foreign investment company where (but for this subsection) there is not full recognition of gain, the excess (if any) of— "(1) the fair market value of such stock, over "(2) its adjusted basis, shall be treated as gain from the sale or exchange of such stock and shall be recognized notwithstanding any provision of law. Proper adjustment shall be made to the basis of any such stock for gain recognized under the preceding sentence." (B) Subsection (e) of section 1291 of the 1986 (Dode is amended by striking out "Rules similar" and inserting in lieu thereof "Except to the extent inconsistent with the regulations prescribed under subsection (f), rules similar". (7)(A) Paragraphs (4) and (5) of section 1291(a) of the 1986 (^de are hereby repealed. (B) Section 1291 of the 1986 Code is amended by adding at the end thereof the following new subsection: "(g) COORDINATION WITH FOREIGN TAX CREDIT RULES.—
"(1) IN GENERAL.—If there are creditable foreign taxes with respect to any distribution in respect of stock in a peissive foreign investment company— "(A) the amount of such distribution shall be determined for purposes of this section with regard to section 78, "(B) the excess distribution taxes shall be allocated ratably to each day in the taxpayer's holding period for the stock, and "(C) to the extent— "(i) that such excess distribution taxes are allocated to a taxable year referred to in subsection (a)(l)(B), such taxes shall be taken into account under section 901 for the current year, and "(ii) that such excess distribution taxes are allocated to any other taxable year, such taxes shall reduce (subject to the principles of section 904(d) and not below zero) the increase in tax determined under subsection (c)(2) for such taxable year by reason of such distribution (but such taxes shall not be taken into account under section 901). "(2) DEFINITIONS.—For purposes of this subsection— "(A) CREDITABLE FOREIGN TAXES.—The term 'creditable foreign taxes' means, with respect to any distribution— "(i) any foreign taxes deemed paid under section 902 with respect to such distribution, and "(ii) any withholding tax imposed with respect to such distribution, but only if the taxpayer chooses the benefits of section 901 and such taxes are creditable under section 901 (determined without regard to paragraph (IXCXii))"(B) EXCESS DISTRIBUTION TAXES.—The term 'excess distribution taxes' means, with respect to any distribution, the
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