IRS Releases Proposed Regulations Under Section 1297

On April 24, the IRS released proposed regulations under Section 1297 to provide guidance regarding when a foreign insurance company's income is excluded from the definition of passive income under Section 1297(b)(2)(B). These regulations are proposed to apply on the date of publication of the Treasury Decision adopting these rules as final regulations in the Federal Register.

Under Section 1297, a foreign corporation is a passive foreign investment company (PFIC) if either 75% or more of its gross income for the taxable year is passive income, or, on average 50% or more of its assets produce passive income or are held for the production of passive income. Section 1297(b)(1) generally defines the term "passive income" to mean any income of a kind that would be "foreign personal holding company income" as defined in Section 954(c).