PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 973 which the United States person is treated as owning under subsection (g)— "(A) the adjustments under paragraph (1) shall apply Applicability, to such stock in the hands of the person actually holding such stock but only for purposes of determining the subsequent treatment under this chapter of the United States person with respect to such stock, and "(B) similar adjustments shall be made to the adjusted basis of the property by reason of which the United States person is treated as owning such stock. "(c) CHARACTER AND SOURCE RULES. — " (1) ORDINARY TREATMENT. — "(A) GAIN. —Any amount included in gross income under subsection (a)(1), and any gain on the sale or other disposition of marketable stock in a passive foreign investment company (with respect to which an election under this section is in effect), shall be treated as ordinary income. "(B) Loss. —Any— "(i) amount allowed as a deduction under subsection (a)(2), and "(ii) loss on the sale or other disposition of marketable stock in a passive foreign investment company (with respect to which an election under this section is in effect) to the extent that the amount of such loss does not exceed the unreversed inclusions with respect to such stock, shall be treated as an ordinary loss. The amount so treated shall be treated as a deduction allowable in computing adjusted gross income. "(2) SOURCE. — The source of any amount included in gross income under subsection (a)(1) (or allowed as a deduction under subsection (a)(2)) shall be determined in the same manner as if such amount were gain or loss (as the case may be) from the sale of stock in the passive foreign investment company. "(d) UNREVERSED INCLUSIONS. —For purposes of this section, the term 'unreversed inclusions' means, with respect to any stock in a passive foreign investment company, the excess (if any) of— "(1) the amount included in gross income of the taxpayer under subsection (a)(1) with respect to such stock for prior taxable years, over "(2) the amount allowed as a deduction under subsection (a)(2) with respect to such stock for prior taxable years. The amount referred to in paragraph (1) shall include any amount which would have been included in gross income under subsection (a)(1) with respect to such stock for any prior taxable year but for section 1291. "(e) MARKETABLE STOCK. — For purposes of this section— "(1) IN GENERAL.. —The term 'marketable stock' means— "(A) any stock which is regularly traded on— "(i) a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section llA of the Securities and Exchange Act of 1934, or
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