PUBLIC LAW 100-647—NOV. 10, 1988 ,
102 STAT. 3519
(21) Section 1246 of the 1986 Code is amended by redesignating the sulwection relating to information with respect to certain foreign investment companies as subsection (f), by redesignating the subsection relating to coordination with section 1248 as subsection (g), and by redesignating the subsection relating to cross reference as subsection (h). (22) Subparagraph (A) of section 1297(b)(3) of the 1986 Code is amended to read as follows: "(A) neither such corporation (nor any predecessor) was a passive foreign investment company for any prior taxable year,". (23) Subsection (c) of section 1293 of the 1986 Code is amended by striking out "shall be treated as a distribution which is not a dividend" and inserting in heu thereof "shall be treated, for purposes of this chapter, as a distribution which is not a dividend; except that such distribution shall immediately reduce earnings and profits". (24) Subsection (b) of section 1297 of the 1986 Code is amended by adding at the end thereof the following new paragraph: "(8) TREATMENT OP CERTAIN FOREIGN CORPORATIONS OWNING STOCK IN 25-PERCENT OWNED DOMESTICORPORATION.—
"(A) IN GENERAL.—If— "(i) a foreign corporation is subject to the tax imposed by section 531 (or waives any benefit under any treaty which would otherwise prevent the imposition of such tax), and "(ii) such foreign corporation owns at least 25 percent (by value) of the stock of a domestic corporation, for purposes of determining whether such foreign corporation is a passive foreign investment company, any qualified stock held by such domestic corporation shall be treated as an asset which does not produce passive income (and is not held for the production of passive income) and any amount included in gross income with respect to such stock shall not be treated as passive income. "(B) QUALIFIED STOCK.—For purposes of subparagraph (A), the term 'qualified stock' means any stock in a C corporation which is a domestic corporation and which is not a regulated investment company or real estate investment trust." (25) Section 1294 of the 1986 (Ik)de is amended by adding at the end thereof the following new subsection: "(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. (26XA) Paragraph (2) of section 1296(b) of the 1986 Code is amended by striking out "or" at the end of subparagraph (A), by striking out the period at the end of subparagraph (B) and inserting in lieu thereof ", or", and by adding at the end thereof the following: "(C) which is interest, a dividend, or a rent or royalty, which is received or accrued from a related person (withm 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.
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