§1411 — Imposition of tax
4 citing cases
Statute Text — 26 U.S.C. §1411
Except as provided in subsection (e)—
In the case of an individual, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax equal to 3.8 percent of the lesser of—
net investment income for such taxable year, or
the excess (if any) of—
the modified adjusted gross income for such taxable year, over
the threshold amount.
In the case of an estate or trust, there is hereby imposed (in addition to any other tax imposed by this subtitle) for each taxable year a tax of 3.8 percent of the lesser of—
the undistributed net investment income for such taxable year, or
the excess (if any) of—
the adjusted gross income (as defined in section 67(e)) for such taxable year, over
the dollar amount at which the highest tax bracket in section 1(e) begins for such taxable year.
For purposes of this chapter, the term “threshold amount” means—
in the case of a taxpayer making a joint return under section 6013 or a surviving spouse (as defined in section 2(a)), $250,000,
in the case of a married taxpayer (as defined in section 7703) filing a separate return, ½ of the dollar amount determined under paragraph (1), and
in any other case, $200,000.
For purposes of this chapter—
The term “net investment income” means the excess (if any) of—
the sum of—
gross income from interest, dividends, annuities, royalties, and rents, other than such income which is derived in the ordinary course of a trade or business not described in paragraph (2),
other gross income derived from a trade or business described in paragraph (2), and
net gain (to the extent taken into account in computing taxable income) attributable to the disposition of property other than property held in a trade or business not described in paragraph (2), over
the deductions allowed by this subtitle which are properly allocable to such gross income or net gain.
A trade or business is described in this paragraph if such trade or business is—
a passive activity (within the meaning of section 469) with respect to the taxpayer, or
a trade or business of trading in financial instruments or commodities (as defined in section 475(e)(2)).
A rule similar to the rule of section 469(e)(1)(B) shall apply for purposes of this subsection.
In the case of a disposition of an interest in a partnership or S corporation—
gain from such disposition shall be taken into account under clause (iii) of paragraph (1)(A) only to the extent of the net gain which would be so taken into account by the transferor if all property of the partnership or S corporation were sold for fair market value immediately before the disposition of such interest, and
a rule similar to the rule of subparagraph (A) shall apply to a loss from such disposition.
The term “net investment income” shall not include any distribution from a plan or arrangement described in section 401(a), 403(a), 403(b), 408, 408A, or 457(b).
Net investment income shall not include any item taken into account in determining self-employment income for such taxable year on which a tax is imposed by section 1401(b).
For purposes of this chapter, the term “modified adjusted gross income” means adjusted gross income increased by the excess of—
the amount excluded from gross income under section 911(a)(1), over
the amount of any deductions (taken into account in computing adjusted gross income) or exclusions disallowed under section 911(d)(6) with respect to the amounts described in paragraph (1).
This section shall not apply to—
a nonresident alien, or
a trust all of the unexpired interests in which are devoted to one or more of the purposes described in section 170(c)(2)(B).
Treasury Regulations
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Treas. Reg. §1.1411-0Table of contents of provisions applicable to section 1411
This section lists the table of contents for §§ 1.1411-1 through 1.1411-10.
(a) General rule.
(b) Adjusted gross income.
(c) Effect of section 1411 and the regulations thereunder for other purposes.
(d) Definitions.
(e) Disallowance of certain credits against the section 1411 tax.
(f) Application to taxable years beginning before January 1, 2014.
(1) Retroactive application of regulations.
(2) Reliance and transitional rules.
(g) Effective/applicability date.
(a) Individual to whom tax applies.
(1) In general.
(2) Special rules.
(i) Dual resident individuals treated as residents of a foreign country under an income tax treaty.
(ii) Dual-status resident aliens.
(iii) Joint returns in the case of a nonresident alien individual married to a United States citizen or resident.
(A) Default treatment.
(B) Taxpayer election.
(1) Effect of election.
(2) Procedural requirements for making election.
(3) Ineffective elections.
(iv) Joint returns for a year in which nonresident alien married to a United States citizen or resident becomes a United States resident.
(A) Default treatment.
(B) Taxpayer election.
(1) Effect of election.
(2) Procedural requirements for making election.
(v) Grantor trusts.
(vi) Bankruptcy estates.
(vii) Bona fide residents of United States territories.
(A) Applicability.
(B) Coordination with exception for nonresident aliens.
(C) Definitions.
(1) Bona fide resident.
(2) United States territory.
(b) Calculation of tax.
(1) In general.
(2) Example.
(c) Modified adjusted gross income.
(1) General rule.
(2) Rules with respect to CFCs and PFICs.
(d) Threshold amount.
(1) In general.
(2) Taxable year of less than twelve months.
(i) General rule.
(ii) Change of annual accounting period.
(e) Effective/applicability date.
(a) Estates and trusts to which tax applies.
(1) In general.
(i) General application.
(ii) Calculation of tax.
(2) Taxable year of less than twelve months.
(i) General rule.
(ii) Change of annual accounting period.
(3) Rules with respect to CFCs and PFICs.
(b) Application to certain trusts and estates.
(1) Exception for certain trusts and estates.
(2) Special rules for certain taxable trusts and estates.
(i) Qualified funeral trusts.
(ii) Bankruptcy estates.
(c) Application to electing small business trusts (ESBTs).
(1) General application.
(2) Computation of tax.
(i) Step one.
(ii) Step two.
(iii) Step three.
(3) Example.
(d) Application to charitable remainder trusts (CRTs).
(1) Operational rules.
(i) Treatment of annuity or unitrust distributions.
(ii) Apportionment among multiple beneficiaries.
(iii) Accumulated net investment income.
(2) Application of section 664.
(i) General rule.
(ii) Special rules for CRTs with income from CFCs or PFICs [Reserved]
(iii) Examples.
(3) Elective simplified method. [Reserved]
(e) Calculation of undistributed net investment income.
(1) In general.
(2) Undistributed net investment income.
(3) Distributions of net investment income to beneficiaries.
(4) Deduction for amounts paid or permanently set aside for a charitable purpose.
(5) Examples.
(f) Effective/applicability date.
(a) In general.
(b) Ordinary course of a trade or business exception.
(c) Other gross income from a trade or business described in § 1.1411-5.
(d) Net gain.
(1) Definition of disposition.
(2) Limitation.
(3) Net gain attributable to the disposition of property.
(i) General rule.
(ii) Examples.
(4) Gains and losses excluded from net investment income.
(i) Exception for gain or loss attributable to property held in a trade or business not described in § 1.1411-5.
(A) General rule.
(B) Special rules for determining whether property is held in a trade or business.
(C) Examples.
(ii) Adjustments to gain or loss attributable to the disposition of interests in a partnership or S corporation.
(iii) Adjustment for capital loss carryforwards for previously excluded income. [Reserved]
(e) Net investment income attributable to certain entities.
(1) Distributions from estates and trusts.
(i) In general.
(ii) Distributions of accumulated net investment income from foreign nongrantor trusts to United States beneficiaries. [Reserved]
(2) CFCs and PFICs.
(3) Treatment of income from common trust funds. [Reserved]
(f) Properly allocable deductions.
(1) General rule.
(i) In general.
(ii) Limitations.
(2) Properly allocable deductions described in section 62.
(i) Deductions allocable to gross income from rents and royalties.
(ii) Deductions allocable to gross income from trades or businesses described in § 1.1411-5.
(iii) Penalty on early withdrawal of savings.
(iv) Net operating loss.
(v) Examples.
(3) Properly allocable deductions described in section 63(d).
(i) Investment interest expense.
(ii) Investment expenses.
(iii) Taxes described in section 164(a)(3).
(iv) Items described in section 72(b)(3).
(v) Items described in section 691(c).
(vi) Items described in section 212(3).
(vii) Amortizable bond premium.
(viii) Fiduciary expenses.
(4) Loss deductions.
(i) General rule.
(ii) Examples.
(5) Ordinary loss deductions for certain debt instruments.
(6) Other deductions.
(7) Application of limitations under sections 67 and 68.
(i) Deductions subject to section 67.
(ii) Deductions subject to section 68.
(iii) Itemized deductions.
(iv) Example.
(g) Special rules.
(1) Deductions allocable to both net investment income and excluded income.
(2) Recoveries of properly allocable deductions.
(i) General rule.
(ii) Recoveries of items allocated between net investment income and excluded income.
(iii) Recoveries with no prior year benefit.
(iv) Examples.
(3) Deductions described in section 691(b).
(4) Amounts described in section 642(h).
(5) Treatment of self-charged interest income.
(6) Treatment of certain nonpassive rental activities.
(i) Gross income from rents.
(ii) Gain or loss from the disposition of property.
(7) Treatment of certain real estate professionals.
(i) Safe harbor.
(ii) Definitions.
(A) Participation.
(B) Rental real estate activity.
(iii) Effect of safe harbor.
(8) Treatment of former passive activities.
(i) Section 469(f)(1)(A) losses.
(ii) Section 469(f)(1)(C) losses.
(iii) Examples.
(9) Treatment of section 469(g)(1) losses.
(10) Treatment of section 707(c) guaranteed payments. [Reserved]
(11) Treatment of section 736 payments. [Reserved]
(12) Income and deductions from certain notional principal contracts. [Reserved]
(13) Treatment of income or loss from REMIC residual interests. [Reserved]
(h) Net operating loss.
(1) In general.
(2) Applicable portion of a net operating loss.
(3) Section 1411 NOL amount of a net operating loss carried to and deducted in a taxable year.
(4) Total section 1411 NOL amount of a net operating loss deduction.
(5) Examples.
(i) Effective/applicability date.
(a) In general.
(b) Passive activity.
(1) In general.
(2) Application of income recharacterization rules.
(i) Income and gain recharacterization.
(ii) Gain recharacterization.
(iii) Exception for certain portfolio recharacterizations.
(3) Examples.
(c) Trading in financial instruments or commodities.
(1) Definition of financial instruments.
(2) Definition of commodities.
(d) Effective/applicability date.
(a) General rule.
(b) Example.
(c) Effective/applicability date.
(a) General rule.
(b) Rules relating to distributions.
(1) Actual distributions.
(2) Amounts treated as distributed.
(3) Amounts includible in gross income.
(4) Amounts related to employer securities.
(i) Dividends related to employer securities.
(ii) Amounts related to the net unrealized appreciation in employer securities.
(c) Effective/applicability date.
(a) General rule.
(b) Special rule for traders.
(c) Examples.
(d) Effective/applicability date.
(a) In general.
(b) Amounts derived from a trade or business described in § 1.1411-5.
(1) In general.
(2) Coordination rule for changes in trade or business status.
(c) Calculation of net investment income.
(1) Dividends.
(i) Distributions of previously taxed earnings and profits.
(A) Rules when an election under paragraph (g) of this section is not in effect with respect to the shareholder.
(1) General rule.
(2) Exception for distributions attributable to earnings and profits previously taken into account for purposes of section 1411.
(B) Rule when an election under paragraph (g) of this section is in effect with respect to the shareholder.
(C) Special rule for certain distributions related to 2013 taxable years.
(1) Scope.
(2) Rule.
(3) Ordering rule.
(ii) Excess distributions that constitute dividends.
(2) Net gain.
(i) Gains treated as excess distributions.
(ii) Inclusions and deductions with respect to section 1296 mark to market elections.
(iii) Gain or loss attributable to the disposition of stock of CFCs and QEFs.
(iv) Gain or loss attributable to the disposition of interests in domestic partnerships or S corporations that own directly or indirectly stock of CFCs or QEFs.
(3) Application of section 1248.
(4) Amounts distributed by an estate or trust.
(5) Properly allocable deductions.
(i) General rule.
(ii) Additional rules.
(d) Conforming basis adjustments.
(1) Basis adjustments under sections 961 and 1293.
(i) Stock held by individuals, estates, or trusts.
(ii) Stock held by domestic partnerships or S corporations.
(A) Rule when an election under paragraph (g) of this section is not in effect.
(B) Rules when an election under paragraph (g) of this section is in effect.
(2) Special rules for partners that own interests in domestic partnerships that own directly or indirectly stock of CFCs or QEFs.
(3) Special rules for S corporation shareholders that own interests in S corporations that own directly or indirectly stock of CFCs or QEFs.
(4) Special rules for participants in common trust funds.
(e) Conforming adjustments to modified adjusted gross income and adjusted gross income.
(1) Individuals.
(2) Estates and trusts.
(f) Application to estates and trusts.
(g) Election with respect to CFCs and QEFs.
(1) Effect of election.
(2) Years to which election applies.
(i) In general.
(ii) Termination of interest in CFC or QEF.
(iii) Termination of partnership.
(3) Who may make the election.
(4) Time and manner for making the election.
(i) Individuals, estates, and trusts.
(A) General rule.
(B) Special rule for charitable remainder trusts (CRTs).
(ii) Certain domestic passthrough entities.
(iii) Taxable years that begin before January 1, 2014.
(A) Individuals, estates, or trusts.
(B) Certain domestic passthrough entities.
(iv) Time for making election.
(h) Examples.
(i) Effective/applicability date.
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Treas. Reg. §1.1411-0(a)In general.
In general.
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Treas. Reg. §1.1411-0(b)Amounts derived from a trade or business described in § 1.
Amounts derived from a trade or business described in § 1.1411-5.
(1) In general.
(2) Coordination rule for changes in trade or business status.
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Treas. Reg. §1.1411-0(c)Calculation of net investment income.
Calculation of net investment income.
(1) Dividends.
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Treas. Reg. §1.1411-0(d)Conforming basis adjustments.
Conforming basis adjustments.
(1) Basis adjustments under sections 961 and 1293.
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Treas. Reg. §1.1411-0(e)Conforming adjustments to modified adjusted gross income and adjusted gross income.
Conforming adjustments to modified adjusted gross income and adjusted gross income.
(1) Individuals.
(2) Estates and trusts.
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Treas. Reg. §1.1411-0(f)Application to estates and trusts.
Application to estates and trusts.
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Treas. Reg. §1.1411-0(g)Election with respect to CFCs and QEFs.
Election with respect to CFCs and QEFs.
(1) Effect of election.
(2) Years to which election applies.
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Treas. Reg. §1.1411-0(h)Examples.
Examples.
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Treas. Reg. §1.1411-0(i)Effective/applicability date.
Effective/applicability date.
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Treas. Reg. §1.1411-0(v)Items described in section 691(c).
Items described in section 691(c).
(vi) Items described in section 212(3).
(vii) Amortizable bond premium.
(viii) Fiduciary expenses.
(4) Loss deductions.
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Treas. Reg. §1.1411-1General rules
(a) General rule. Except as otherwise provided, all Internal Revenue Code (Code) provisions that apply for chapter 1 purposes in determining taxable income (as defined in section 63(a)) of a taxpayer also apply in determining the tax imposed by section 1411.
(b) Adjusted gross income. All references to an individual's adjusted gross income are treated as references to adjusted gross income as defined in section 62, and all references to an estate's or trust's adjusted gross income are treated as references to adjusted gross income as defined in section 67(e). However, there may be additional adjustments to adjusted gross income because of investments in controlled foreign corporations (CFCs) or passive foreign investment companies (PFICs). See § 1.1411-10(e).
(c) Effect of section 1411 and the regulations thereunder for other purposes. The inclusion or exclusion of items of income, gain, loss, or deduction in determining net investment income for purposes of section 1411, and the assignment of items of income, gain, loss, or deduction to a particular category of net investment income under section 1411(c)(1)(A), does not affect the treatment of any item of income, gain, loss, or deduction under any provision of the Code other than section 1411.
(d) Definitions. The following definitions apply for purposes of calculating net investment income under section 1411 and the regulations thereunder—
(1) The term gross income from annuities under section 1411(c)(1)(A) includes the amount received as an annuity under an annuity, endowment, or life insurance contract that is includible in gross income as a result of the application of section 72(a) and section 72(b), and an amount not received as an annuity under an annuity contract that is includible in gross income under section 72(e). In the case of a sale of an annuity, to the extent the sales price of the annuity does not exceed its surrender value, the gain recognized would be treated as gross income from an annuity within the meaning of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i). However, if the sales price of the annuity exceeds its surrender value, the seller would treat the gain equal to the difference between the basis in the annuity and the surrender value as gross income from an annuity described in section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i) and the excess of the sales price over the surrender value as gain from the disposition of property included in section 1411(c)(1)(A)(iii) and § 1.1411-4(a)(1)(iii). The term gross income from annuities does not include amounts paid in consideration for services rendered. For example, distributions from a foreign retirement plan that are paid in the form of an annuity and include investment income that was earned by the retirement plan does not constitute income from an annuity within the meaning of section 1411(c)(1)(A)(i).
(2) The term controlled foreign corporation (CFC) is as defined in section 953(c)(1)(B) or 957(a).
(3) The term gross income from dividends includes any item treated as a dividend for purposes of chapter 1. See also § 1.1411-10 for additional amounts that constitute gross income from dividends. The term gross income from dividends includes, but is not limited to, amounts treated as dividends—
(i) Pursuant to subchapter C that are included in gross income (including constructive dividends);
(ii) Pursuant to section 1248(a), other than as provided in § 1.1411-10;
(iii) Pursuant to § 1.367(b)-2(e)(2);
(iv) Pursuant to section 1368(c)(2); and
(v) Substitute dividends that represent payments made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction.
(4) The term excluded income means:
(i) Items of income excluded from gross income in chapter 1. For example, interest on state and local bonds excluded from gross income under section 103 and gain from the sale of a principal residence excluded from gross income under section 121.
(ii) Items of income not included in net investment income, as determined under §§ 1.1411-4 and 1.1411-10. For example, wages, unemployment compensation, Alaska Permanent Fund Dividends, alimony, and Social Security Benefits.
(iii) Items of gross income and net gain specifically excluded by section 1411, the regulations thereunder, or other guidance published in the Internal Revenue Bulletin. For example, gains from the disposition of property used in a trade of business not described in section 1411(c)(2) under § 1.1411-4(d)(4)(i), distributions from certain Qualified Plans described in section 1411(c)(5) and § 1.1411-8, income taken into account in determining self-employment income that is subject to tax under section 1401(b) described in section 1411(c)(6) and § 1.1411-9, and section 951(a) inclusions from a CFC for which a § 1.1411-10(g) election is not in effect.
(5) The term individual means any natural person.
(6) The term gross income from interest includes any item treated as interest income for purposes of chapter 1 and substitute interest that represents payments made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction.
(7) The term married and married taxpayer has the same meaning as in section 7703.
(8) The term net investment income (NII) means net investment income as defined in section 1411(c) and § 1.1411-4, as adjusted pursuant to the rules described in § 1.1411-10(c).
(9) The term passive foreign investment company (PFIC) is as defined in section 1297(a).
(10) The term gross income from rents includes amounts paid or to be paid principally for the use of (or the right to use) tangible property.
(11) The term gross income from royalties includes amounts received from mineral, oil, and gas royalties, and amounts received for the privilege of using patents, copyrights, secret processes and formulas, goodwill, trademarks, tradebrands, franchises, and other like property.
(12) The term trade or business refers to a trade or business within the meaning of section 162.
(13) The term United States person is as defined in section 7701(a)(30).
(14) The term United States shareholder is as defined in section 951(b).
(e) Disallowance of certain credits against the section 1411 tax. Amounts that may be credited against only the tax imposed by chapter 1 of the Code may not be credited against the section 1411 tax imposed by chapter 2A of the Code unless specifically provided in the Code. For example, the foreign income, war profits, and excess profits taxes that are allowed as a foreign tax credit by section 27(a), section 642(a), and section 901, respectively, are not allowed as a credit against the section 1411 tax.
(f) Application to taxable years beginning before January 1, 2014—(1) Retroactive application of regulations. Taxpayers that are subject to section 1411, and any other taxpayer to which these regulations may apply (such as partnerships and S corporations), may apply §§ 1.1411-1 through 1.1411-10 (including the ability to make any election(s) contained therein) in any taxable year that begins after December 31, 2012, but before January 1, 2014, for which the period of limitation under section 6501 has not expired.
(2) Reliance and transitional rules. For taxable years beginning before January 1, 2014, the Internal Revenue Service will not challenge a taxpayer's computation of tax under section 1411 if the taxpayer has made a reasonable, good faith effort to comply with the requirements of section 1411. For example, a taxpayer's compliance with the provisions of the proposed and final regulations under section 1411 (REG-130507-11 or REG-130843-13), generally, will be considered a reasonable, good faith effort to comply with the requirements of section 1411 if reliance on such regulation projects under section 1411 are applied in their entirety, and the taxpayer makes reasonable adjustments to ensure that their section 1411 tax liability in the taxable years beginning after December 31, 2013, is not inappropriately distorted by the positions taken in taxable years beginning after December 31, 2012, but before January 1, 2014. A similar rule applies to any other taxpayer to which these regulations may apply (such as partnerships and S corporations).
(g) Effective/applicability date. This section applies to taxable years beginning after December 31, 2013. However, taxpayers may apply this section to taxable years beginning after December 31, 2012, in accordance with paragraph (f) of this section.
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Treas. Reg. §1.1411-1(a)General rule.
General rule. Except as otherwise provided, all Internal Revenue Code (Code) provisions that apply for chapter 1 purposes in determining taxable income (as defined in section 63(a)) of a taxpayer also apply in determining the tax imposed by section 1411.
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Treas. Reg. §1.1411-1(b)Adjusted gross income.
Adjusted gross income. All references to an individual's adjusted gross income are treated as references to adjusted gross income as defined in section 62, and all references to an estate's or trust's adjusted gross income are treated as references to adjusted gross income as defined in section 67(e). However, there may be additional adjustments to adjusted gross income because of investments in controlled foreign corporations (CFCs) or passive foreign investment companies (PFICs). See § 1.1411-10(e).
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Treas. Reg. §1.1411-1(c)Effect of section 1411 and the regulations thereunder for other purposes.
Effect of section 1411 and the regulations thereunder for other purposes. The inclusion or exclusion of items of income, gain, loss, or deduction in determining net investment income for purposes of section 1411, and the assignment of items of income, gain, loss, or deduction to a particular category of net investment income under section 1411(c)(1)(A), does not affect the treatment of any item of income, gain, loss, or deduction under any provision of the Code other than section 1411.
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Treas. Reg. §1.1411-1(d)Definitions.
Definitions. The following definitions apply for purposes of calculating net investment income under section 1411 and the regulations thereunder—
(1) The term gross income from annuities under section 1411(c)(1)(A) includes the amount received as an annuity under an annuity, endowment, or life insurance contract that is includible in gross income as a result of the application of section 72(a) and section 72(b), and an amount not received as an annuity under an annuity contract that is includible in gross income under section 72(e). In the case of a sale of an annuity, to the extent the sales price of the annuity does not exceed its surrender value, the gain recognized would be treated as gross income from an annuity within the meaning of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i). However, if the sales price of the annuity exceeds its surrender value, the seller would treat the gain equal to the difference between the basis in the annuity and the surrender value as gross income from an annuity described in section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i) and the excess of the sales price over the surrender value as gain from the disposition of property included in section 1411(c)(1)(A)(iii) and § 1.1411-4(a)(1)(iii). The term gross income from annuities does not include amounts paid in consideration for services rendered. For example, distributions from a foreign retirement plan that are paid in the form of an annuity and include investment income that was earned by the retirement plan does not constitute income from an annuity within the meaning of section 1411(c)(1)(A)(i).
(2) The term controlled foreign corporation (CFC) is as defined in section 953(c)(1)(B) or 957(a).
(3) The term gross income from dividends includes any item treated as a dividend for purposes of chapter 1. See also § 1.1411-10 for additional amounts that constitute gross income from dividends. The term gross income from dividends includes, but is not limited to, amounts treated as dividends—
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Treas. Reg. §1.1411-1(e)Disallowance of certain credits against the section 1411 tax.
Disallowance of certain credits against the section 1411 tax. Amounts that may be credited against only the tax imposed by chapter 1 of the Code may not be credited against the section 1411 tax imposed by chapter 2A of the Code unless specifically provided in the Code. For example, the foreign income, war profits, and excess profits taxes that are allowed as a foreign tax credit by section 27(a), section 642(a), and section 901, respectively, are not allowed as a credit against the section 1411 tax.
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Treas. Reg. §1.1411-1(f)Application to taxable years beginning before January 1, 2014—(1) Retroactive application of regulations.
Application to taxable years beginning before January 1, 2014—(1) Retroactive application of regulations. Taxpayers that are subject to section 1411, and any other taxpayer to which these regulations may apply (such as partnerships and S corporations), may apply §§ 1.1411-1 through 1.1411-10 (including the ability to make any election(s) contained therein) in any taxable year that begins after December 31, 2012, but before January 1, 2014, for which the period of limitation under section 6501 has not expired.
(2) Reliance and transitional rules. For taxable years beginning before January 1, 2014, the Internal Revenue Service will not challenge a taxpayer's computation of tax under section 1411 if the taxpayer has made a reasonable, good faith effort to comply with the requirements of section 1411. For example, a taxpayer's compliance with the provisions of the proposed and final regulations under section 1411 (REG-130507-11 or REG-130843-13), generally, will be considered a reasonable, good faith effort to comply with the requirements of section 1411 if reliance on such regulation projects under section 1411 are applied in their entirety, and the taxpayer makes reasonable adjustments to ensure that their section 1411 tax liability in the taxable years beginning after December 31, 2013, is not inappropriately distorted by the positions taken in taxable years beginning after December 31, 2012, but before January 1, 2014. A similar rule applies to any other taxpayer to which these regulations may apply (such as partnerships and S corporations).
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Treas. Reg. §1.1411-1(g)Effective/applicability date.
Effective/applicability date. This section applies to taxable years beginning after December 31, 2013. However, taxpayers may apply this section to taxable years beginning after December 31, 2012, in accordance with paragraph (f) of this section.
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Treas. Reg. §1.1411-1(i)Items of income excluded from gross income in chapter 1.
Items of income excluded from gross income in chapter 1. For example, interest on state and local bonds excluded from gross income under section 103 and gain from the sale of a principal residence excluded from gross income under section 121.
(ii) Items of income not included in net investment income, as determined under §§ 1.1411-4 and 1.1411-10. For example, wages, unemployment compensation, Alaska Permanent Fund Dividends, alimony, and Social Security Benefits.
(iii) Items of gross income and net gain specifically excluded by section 1411, the regulations thereunder, or other guidance published in the Internal Revenue Bulletin. For example, gains from the disposition of property used in a trade of business not described in section 1411(c)(2) under § 1.1411-4(d)(4)(i), distributions from certain Qualified Plans described in section 1411(c)(5) and § 1.1411-8, income taken into account in determining self-employment income that is subject to tax under section 1401(b) described in section 1411(c)(6) and § 1.1411-9, and section 951(a) inclusions from a CFC for which a § 1.1411-10(g) election is not in effect.
(5) The term individual means any natural person.
(6) The term gross income from interest includes any item treated as interest income for purposes of chapter 1 and substitute interest that represents payments made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction.
(7) The term married and married taxpayer has the same meaning as in section 7703.
(8) The term net investment income (NII) means net investment income as defined in section 1411(c) and § 1.1411-4, as adjusted pursuant to the rules described in § 1.1411-10(c).
(9) The term passive foreign investment company (PFIC) is as defined in section 1297(a).
(10) The term gross income from rents includes amounts paid or to be paid principally for the use of (or the right to use) tangible property.
(11) The term gross income from royalties includes amounts received from mineral, oil, and gas royalties, and amounts received for the privilege of using patents, copyrights, secret processes and formulas, goodwill, trademarks, tradebrands, franchises, and other like property.
(12) The term trade or business refers to a trade or business within the meaning of section 162.
(13) The term United States person is as defined in section 7701(a)(30).
(14) The term United States shareholder is as defined in section 951(b).
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Treas. Reg. §1.1411-1(v)Substitute dividends that represent payments made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction.
Substitute dividends that represent payments made to the transferor of a security in a securities lending transaction or a sale-repurchase transaction.
(4) The term excluded income means:
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Treas. Reg. §1.1411-10Controlled foreign corporations and passive foreign investment companies
(a) In general. This section provides rules that apply to an individual, estate, or trust that is a United States shareholder of a controlled foreign corporation (CFC), or that is a United States person that directly or indirectly owns an interest in a passive foreign investment company (PFIC). In addition, this section provides rules that apply to an individual, estate, or trust that owns an interest in a domestic partnership or an S corporation that is either a United States shareholder of a CFC or that has made an election under section 1295 to treat a PFIC as a qualified electing fund (QEF). References in this section to an election under paragraph (g) of this section being in effect relate to an election that is applicable to the person that is determining the section 1411 consequences with respect to holding a particular CFC or QEF.
(b) Amounts derived from a trade or business described in § 1.1411-5—(1) In general. Except as provided in paragraph (b)(2) of this section, an amount included in gross income under section 951(a) or section 1293(a) that is also income derived from a trade or business described in section 1411(c)(2) and § 1.1411-5 (applying the relevant rules in § 1.1411-4(b)) is taken into account as net investment income under section 1411(c)(1)(A)(ii) and § 1.1411-4(a)(1)(ii) for purposes of section 1411 and the regulations thereunder when it is taken into account for purposes of chapter 1, and the rules in paragraphs (c) through (g) of this section do not apply to that amount. For purposes of section 1411 and the regulations thereunder, an amount included in gross income under section 1296(a) that is also income derived from a trade or business described in section 1411(c)(2) and § 1.1411-5 (applying the relevant rules in § 1.1411-4(b)), is net investment income within the meaning of section 1411(c)(1)(A)(ii) and § 1.1411-4(a)(1)(ii), and the rules in paragraph (c)(2)(ii) of this section do not apply to that amount.
(2) Coordination rule for changes in trade or business status. With respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, the rules in paragraphs (c) through (f) of this section apply to a distribution of earnings and profits described in paragraph (c)(1)(i)(A) of this section that was not taken into account as net investment income under paragraph (b) of this section.
(c) Calculation of net investment income—(1) Dividends. For purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i), net investment income is calculated by taking into account the amount of dividends described in this paragraph (c)(1).
(i) Distributions of previously taxed earnings and profits—(A) Rules when an election under paragraph (g) of this section is not in effect with respect to the shareholder—(1) General rule. Except as otherwise provided in this paragraph (c)(1)(i), with respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, a distribution of earnings and profits that is not treated as a dividend for chapter 1 purposes under section 959(d) or section 1293(c) is a dividend for purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i) if the distribution is attributable to amounts that are or have been included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) in a taxable year beginning after December 31, 2012. Solely, for this purpose, distributions of earnings and profits attributable to amounts that are or have been included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) are considered first attributable to those earnings and profits, if any, derived from the current taxable year, and then from prior taxable years beginning with the most recent prior taxable year, and with respect to amounts included under section 951(a), without regard to whether the earnings and profits are described in section 959(c)(1) or section 959(c)(2).
(2) Exception for distributions attributable to earnings and profits previously taken into account for purposes of section 1411. A distribution of earnings and profits that is not treated as a dividend for chapter 1 purposes under section 959(d) or section 1293(c) is not treated as a dividend for purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i), to the extent that an individual, estate, or trust establishes, by providing information that is similar to, and in the same manner as, the information described in § 1.959-1(d) (relating to previously taxed earnings and profits), that the distribution is attributable to—
(i) Amounts included in gross income by any person for chapter 1 purposes under section 951(a) or section 1293(a) that have been taken into account by any person as net investment income by reason of paragraph (b) of this section or an election under paragraph (g) of this section; or
(ii) Amounts included in gross income by any person as a dividend pursuant to section 1248(a) that, by reason of paragraph (c)(3)(ii) of this section, have been taken into account by any person as net investment income under section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i).
(B) Rule when an election under paragraph (g) of this section is in effect with respect to the shareholder. Except as otherwise provided in this paragraph (c)(1)(i), if an election under paragraph (g) of this section is in effect, a distribution of earnings and profits that is not treated as a dividend for chapter 1 purposes under section 959(d) or section 1293(c) is not treated as a dividend for purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i).
(C) Special rule for certain distributions related to 2013 taxable years—(1) Scope. The rule in this paragraph (c)(1)(i)(C) applies to individuals, estates, and trusts that were subject to section 1411 during a taxable year that began after December 31, 2012, and before January 1, 2014, and that satisfy all of the conditions set forth in paragraph (c)(1)(i)(C)(2) of this section. This rule also applies to all domestic partnerships and S corporations that satisfy all of the conditions set forth in paragraph (c)(1)(i)(C)(2) of this section.
(2) Rule. A distribution of earnings and profits from a CFC or QEF, with respect to which an election under paragraph (g) is in effect, that is not treated as a dividend for chapter 1 purposes under section 959(d) or section 1293(c) is a dividend for purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i) to the extent that—
(i) The distribution of earnings and profits is attributable to an amount included by an individual, estate, trust, domestic partnership, S corporation or common trust fund in gross income for chapter 1 purposes under section 951(a) or section 1293(a) with respect to the CFC or QEF for a taxable year that began after December 31, 2012, and before January 1, 2014;
(ii) The individual, estate, trust, domestic partnership, S corporation, or common trust fund made the election under paragraph (g) of this section with respect to the CFC or QEF in a taxable year that began after December 31, 2013; and
(iii) The individual, estate, trust, domestic partnership, S corporation, or common trust fund did not make the election described in paragraph (g)(4)(iii) of this section (concerning making an election under paragraph (g) of this section for a taxable year that begins before January 1, 2014).
(3) Ordering rule. Solely, for purposes of this paragraph (c)(1)(i)(C)(3), distributions of earnings and profits attributable to amounts that have been included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) are considered first attributable to the earnings and profits derived from a taxable year that began after December 31, 2012, and before January 1, 2014.
(ii) Excess distributions that constitute dividends. To the extent an excess distribution within the meaning of section 1291(b) constitutes a dividend within the meaning of section 316(a), the amount is included in net investment income for purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i).
(2) Net gain. For purposes of section 1411(c)(1)(A)(iii) and § 1.1411-4(a)(1)(iii), the rules in this paragraph (c)(2) apply in determining net gain attributable to the disposition of property.
(i) Gains treated as excess distributions. Gains treated as excess distributions under section 1291(a)(2) are included in determining net gain attributable to the disposition of property for purposes of section 1411(c)(1)(A)(iii) and § 1.1411-4(a)(1)(iii).
(ii) Inclusions and deductions with respect to section 1296 mark to market elections. Amounts included in gross income under section 1296(a)(1) and amounts allowed as a deduction under section 1296(a)(2) are taken into account in determining net gain attributable to the disposition of property for purposes of section 1411(c)(1)(A)(iii) and § 1.1411-4(a)(1)(iii).
(iii) Gain or loss attributable to the disposition of stock of CFCs and QEFs. With respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, for purposes of calculating the net gain under §§ 1.1411-4(a)(1)(iii) and 1.1411-4(d) that is attributable to the direct or indirect disposition of that stock (including for purposes of determining gain or loss on the direct or indirect disposition of that stock by a domestic partnership, S corporation, or common trust fund), basis is determined in accordance with the provisions of paragraph (d) of this section.
(iv) Gain or loss attributable to the disposition of interests in domestic partnerships or S corporations that own directly or indirectly stock of CFCs or QEFs. With respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, for purposes of calculating the net gain under §§ 1.1411-4(a)(1)(iii) and 1.1411-4(d) that is attributable to the disposition of an interest in a domestic partnership or S corporation that directly or indirectly owns that stock, basis is determined in accordance with the provisions of paragraph (d) of this section.
(3) Application of sections 1248 and 367(b). With respect to stock of a foreign corporation that is a CFC (or that was a CFC at any time during the 5-year period ending on the date of sale or exchange) or QEF for which an election under paragraph (g) of this section is not in effect, for purposes of section 1411 and § 1.1411-4—
(i) In determining the amount of gain recognized on the sale or exchange of stock of a foreign corporation under section 1248(a) or the amount of gain realized on the exchange of stock of a foreign corporation under § 1.367(b)-4 or 1.367(b)-5, basis is determined in accordance with the provisions of paragraph (d) of this section; and
(ii) Section 1248(a), and § 1.367(b)-2(c)(1) and (d)(2)(ii) apply without regard to the exclusions for certain earnings and profits under section 1248(d)(1) and (6), except that those exclusions will apply with respect to the earnings and profits of a foreign corporation that are attributable to:
(A) Amounts taken into account as net investment income under paragraph (b) of this section; and
(B) Amounts previously included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) in a taxable year beginning before December 31, 2012, and that have not yet been distributed. For this purpose, the determination of whether earnings and profits that are attributable to amounts previously taxed in a taxable year beginning before December 31, 2012, have been distributed is determined based on the rules described in paragraph (c)(1)(i) of this section.
(4) Amounts distributed by an estate or trust. Net investment income of a beneficiary of an estate or trust includes the beneficiary's share of distributable net income, as described in sections 652 and 662 and as modified by paragraph (f) of this section, to the extent that the beneficiary's share of distributable net income includes items that, if they had been received directly by the beneficiary, would have been described in this paragraph (c).
(5) Properly allocable deductions—(i) General rule. For purposes of section 1411(c)(1)(B) and § 1.1411-4(f), the section 163(d)(1) investment expense deduction may be calculated by—
(A) Increasing the amount of investment income determined for chapter 1 purposes under section 163(d)(4)(B) by the amount of dividends described in § 1.1411-10(c) that are derived from a CFC or QEF with respect to which an election under paragraph (g) of this section is not in effect;
(B) Decreasing the amount of investment income determined for chapter 1 purposes under section 163(d)(4)(B) by the amount included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) that is attributable to a CFC or QEF with respect to which an election under paragraph (g) of this section is not in effect; and
(C) Increasing or decreasing, as applicable, the amount of investment income for chapter 1 purposes under section 163(d)(4)(B) by the difference between the amount calculated with respect to a disposition under paragraphs (c)(2)(iii) and (c)(2)(iv) of this section and the amount of the gain or loss attributable to the relevant disposition as calculated for chapter 1 purposes.
(ii) Additional rules. For purposes of section 1411(c)(1)(B) and § 1.1411-4(f), if the method of calculation described in paragraph (c)(5)(i) of this section is applied:
(A) The amount of investment interest not allowed as a deduction under section 163(d)(2) must be calculated consistent with the method of calculation described in paragraph (c)(5)(i).
(B) The method of calculation must be adopted by an individual, estate, or trust no later than the first year in which the individual, estate, or trust is subject to section 1411.
(C) The method of calculation must be applied with respect to all CFCs and QEFs for all taxable years with respect to which an election under paragraph (g) of this section is not in effect.
(D) A method of calculation under this paragraph is a method of accounting, which must be applied consistently, and may only be changed by the taxpayer by securing the consent of the Commissioner in accordance with § 1.446-1(e) and following the administrative procedures issued under § 1.446-1(e)(3)(ii).
(d) Conforming basis adjustments—(1) Basis adjustments under sections 961 and 1293—(i) Stock held by individuals, estates, or trusts. With respect to stock of a CFC or QEF which is held by an individual, estate, or trust, either directly or indirectly through one or more entities each of which is foreign, for which an election under paragraph (g) of this section is not in effect—
(A) The basis increases made pursuant to sections 961(a) and 1293(d) for amounts included in gross income for chapter 1 purposes under sections 951(a) and 1293(a) in taxable years beginning after December 31, 2012, are not taken into account for purposes of section 1411 and the regulations thereunder; and
(B) The basis decreases made pursuant to sections 961(b) and 1293(d) attributable to amounts treated as dividends for purposes of section 1411 under paragraph (c)(1)(i) of this section are not taken into account for purposes of section 1411 and the regulations thereunder.
(ii) Stock held by domestic partnerships or S corporations—(A) Rule when an election under paragraph (g) of this section is not in effect. The rules of this paragraph (d)(1)(ii)(A) apply with respect to stock of a CFC or QEF held directly by a domestic partnership or S corporation, or indirectly through one or more entities each of which is foreign, for which an election under paragraph (g) of this section is not in effect. If an individual, estate, or trust is a shareholder of an S corporation, or if an individual, estate, or trust directly, or through one or more tiers of passthrough entities (including an S corporation), owns an interest in a domestic partnership, the S corporation or domestic partnership, as the case may be, will not take into account for purposes of section 1411 and the regulations thereunder the basis increases made by the domestic partnership or S corporation pursuant to sections 961(a) and 1293(d) for amounts included in gross income for chapter 1 purposes under sections 951(a) and 1293(a) for taxable years beginning after December 31, 2012, and the basis decreases made by the domestic partnership or S corporation pursuant to sections 961(b) and 1293(d) attributable to amounts treated as dividends for purposes of section 1411 under paragraph (c)(1)(i) of this section (the section 1411 recalculated basis). If the domestic partnership or S corporation disposes of the stock of a CFC or QEF, the section 1411 recalculated basis will be used to determine the distributive share or pro rata share of the gain or loss for purposes of section 1411 for partners or shareholders.
(B) Rules when an election under paragraph (g) of this section is in effect. If an election under paragraph (g) of this section is in effect with respect to stock of a CFC or QEF held directly or indirectly by a domestic partnership or S corporation, the partner's distributive share or the shareholder's pro rata share of the gain or loss for purposes of section 1411 is the same as the distributive share or pro rata share of the gain or loss for purposes of chapter 1. See Example 6 of paragraph (h) of this section.
(2) Special rules for partners that own interests in domestic partnerships that own directly or indirectly stock of CFCs or QEFs. The rules of this paragraph (d)(2) apply with respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, and that is held by a domestic partnership, either directly or indirectly through one or more entities each of which is foreign. In such a case, the basis increases provided under section 705(a)(1)(A) to the partners for purposes of chapter 1 that are attributable to amounts that the domestic partnership includes or included in gross income under section 951(a) or section 1293(a) for a taxable year beginning after December 31, 2012, are not taken into account for purposes of section 1411. Instead, each partner's adjusted basis in the partnership interest is increased by its share of any distributions to the partnership from the CFC or QEF that are treated as dividends for purposes of section 1411 under paragraph (c)(1)(i) of this section. Similar rules apply when the stock of the CFC or QEF is held in a tiered partnership structure. For purposes of determining net investment income under section 1411 and the regulations thereunder, the partner's adjusted basis in the partnership interest as calculated under this paragraph (d)(2) is used to determine all tax consequences related to tax basis (for example, loss limitation rules and the characterization of partnership distributions).
(3) Special rules for S corporation shareholders that own interests in S corporations that own directly or indirectly stock of CFCs or QEFs. The rules of this paragraph (d)(3) apply with respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, and that is held by an S corporation, directly or indirectly through one or more entities each of which is foreign. In such case, the basis increases provided in section 1367(a)(1)(A) to its shareholders for chapter 1 purposes that are attributable to amounts that the S corporation includes or included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) for taxable years beginning after December 31, 2012, are not taken into account for purposes of section 1411. Instead, each shareholder's adjusted basis of stock in the S corporation is increased by its share of the distributions to the S corporation from the CFC or QEF that are treated as dividends for purposes of section 1411 under paragraph (c)(1)(i) of this section. Similar rules apply when the S corporation holds an interest in a CFC or QEF through a partnership. For purposes of determining net investment income under section 1411 and the regulations thereunder, the shareholder's adjusted basis in the stock of the S corporation as calculated under this paragraph (d)(3) is used to determine all tax consequences related to tax basis (for example, loss limitation rules and the characterization of S corporation distributions).
(4) Special rules for participants in common trust funds. Rules similar to the rules in paragraphs (d)(2) and (3) of this section apply to ownership interests in common trust funds (as defined in section 584).
(5) Basis adjustments under section 367(b). With respect to stock of a foreign corporation that is exchanged in a transaction subject to section 367(b), the portion of the basis increase provided by § 1.367(b)-2(e)(3)(ii) by reason of paragraph (c)(3)(ii) of this section is made solely for purposes of section 1411.
(e) Conforming adjustments to modified adjusted gross income and adjusted gross income—(1) Individuals. Solely for purposes of section 1411(a)(1)(B)(i) and the regulations thereunder, the term modified adjusted gross income means modified adjusted gross income as defined in § 1.1411-2(c)(1)—
(i) Increased by amounts included in net investment income under paragraphs (c)(1)(i), (c)(1)(ii), (c)(2)(i), and (c)(4) of this section that are not otherwise included in gross income for chapter 1 purposes;
(ii) Increased or decreased, as applicable, by the difference between the amount calculated with respect to a disposition under paragraphs (c)(2)(iii) and (iv) of this section and the amount of the gain or loss attributable to the relevant disposition as calculated for chapter 1 purposes;
(iii) Decreased by any amount included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) attributable to a CFC or QEF with respect to which no election under paragraph (g) of this section is in effect; and
(iv) To the extent the section 163(d)(1) investment interest expense deduction is calculated using the method of calculation set forth in paragraph (c)(5) of this section and the deduction is taken into account under § 1.1411-4(f)(2), increased or decreased, as appropriate, by the difference between the amount of the section 163(d)(1) investment interest expense deduction calculated under paragraph (c)(5) of this section and the amount calculated for chapter 1 purposes.
(2) Estates and trusts. Solely for purposes of section 1411(a)(2)(B)(i) and the regulations thereunder, the term adjusted gross income means adjusted gross income as defined in § 1.1411-3(a)(1)(ii)(B)(1) adjusted by the following amounts to the extent those amounts are not distributed by the estate or trust—
(i) Increased by amounts included in net investment income under paragraphs (c)(1)(i), (c)(1)(ii), (c)(2)(i), and (c)(4) of this section that are not otherwise included in gross income for chapter 1 purposes;
(ii) Increased or decreased, as applicable, by the difference between the amount calculated with respect to a disposition under paragraphs (c)(2)(iii) and (iv) of this section and the amount of the gain or loss attributable to the relevant disposition as calculated for chapter 1 purposes;
(iii) Decreased by any amount included in gross income for chapter 1 purposes under section 951(a) or section 1293(a) attributable to a CFC or QEF with respect to which no election under paragraph (g) of this section is in effect; and
(iv) To the extent the section 163(d)(1) investment interest expense deduction is calculated using the method of calculation set forth in paragraph (c)(5) of this section and taken into account under § 1.1411-4(f)(2), increased or decreased, as appropriate, by the difference between the amount of the section 163(d)(1) investment interest expense deduction calculated under paragraph (c)(5) of this section and the amount calculated for chapter 1 purposes.
(f) Application to estates and trusts. All of the items described in paragraph (c) of this section are included in the net investment income of an estate or trust or its beneficiaries. The amounts described in paragraphs (e)(2)(i) through (iv) of this section, regardless of whether the estate or trust receives those amounts directly or indirectly through another estate or trust, increase or decrease, as applicable, the estate's or trust's distributable net income for purposes of section 1411. The estate or trust, or the beneficiaries thereof, must take those amounts into account in a manner reasonably consistent with the general operating rules for estates and trusts in § 1.1411-3 and subchapter J in computing the undistributed net investment income of the estate or trust and the net investment income of the beneficiaries.
(g) Election with respect to CFCs and QEFs—(1) Effect of election. If an election under paragraph (g) of this section is made with respect to a CFC or QEF, amounts included in gross income for chapter 1 purposes under section 951(a) or section 1293(a)(1)(A) with respect to the CFC or QEF in taxable years beginning with the taxable year for which the election is made are treated as net investment income for purposes of § 1.1411-4(a)(1)(i), and amounts included in gross income under section 1293(a)(1)(B) with respect to the QEF in taxable years beginning with the taxable year for which the election is made are taken into account in calculating net gain attributable to the disposition of property under § 1.1411-4(a)(1)(iii). See paragraphs (c)(1)(i)(B) and (c)(1)(i)(C) of this section for the effect of this election on certain distributions of previously taxed earnings and profits.
(2) Years to which election applies—(i) In general. An election under paragraph (g) of this section applies to the taxable year for which it is made and all subsequent taxable years, and applies to all subsequently acquired interests in the CFC or QEF. An election under paragraph (g) of this section is irrevocable.
(ii) Termination of interest in CFC or QEF. Complete termination of a person's interest in the CFC or QEF does not terminate the person's election under paragraph (g) of this section with respect to the CFC or QEF. Thus, if the person reacquires stock of the CFC or QEF, that stock is considered to be stock for which an election under paragraph (g) of this section has been made and is in effect.
(iii) Termination of partnership. If a domestic partnership that makes the election under paragraph (g) of this section is terminated pursuant to section 708(b)(1)(B), the election is binding on the new partnership.
(3) Who may make the election. An individual, estate, trust, domestic partnership, S corporation, or common trust fund may make an election under paragraph (g) of this section with respect to each CFC or QEF that it holds directly or indirectly through one or more entities, each of which is foreign. In addition, an individual, estate, trust, domestic partnership, S corporation, or common trust fund may make an election under paragraph (g) of this section with respect to a CFC or QEF that it holds indirectly through a domestic partnership, S corporation, estate, trust, or common trust fund if the domestic partnership, S corporation, estate, trust, or common trust fund does not make the election. The election, if made, for an estate or trust must be made by the fiduciary of that estate or trust.
(4) Time and manner for making the election—(i) Individuals, estates, and trusts—(A) General rule. Except as otherwise provided in this paragraph, in order for an election under paragraph (g) of this section by an individual, estate, or trust (other than a CRT) with respect to a CFC or QEF to be effective, the election must be made no later than the first taxable year beginning after December 31, 2013, during which the individual, estate, or trust—
(1) Includes an amount in gross income for chapter 1 purposes under section 951(a) or section 1293(a) with respect to the CFC or QEF; and
(2) Is subject to tax under section 1411 or would be subject to tax under section 1411 if the election were made with respect to the stock of the CFC or QEF.
(B) Special rule for charitable remainder trusts (CRTs). Except as otherwise provided in this paragraph, in order for an election under paragraph (g) of this section by a CRT with respect to a CFC or QEF to be effective, the election must be made no later than the first taxable year beginning after December 31, 2013, during which the CRT includes an amount in gross income for chapter 1 purposes under section 951(a) or section 1293(a) with respect to the CFC or QEF.
(ii) Certain domestic passthrough entities. Except as otherwise provided in this paragraph, in order for an election under paragraph (g) of this section by a domestic partnership, S corporation, or common trust fund with respect to a CFC or a QEF to be effective, the election must be made no later than the first taxable year beginning after December 31, 2013, during which the domestic partnership S corporation, or common trust fund—
(A) Includes an amount in gross income for chapter 1 purposes under section 951(a) or section 1293(a) with respect to the CFC or QEF; and
(B) Has a direct or indirect owner that is subject to tax under section 1411 or would be subject to tax under section 1411 if the election were made.
(iii) Taxable years that begin before January 1, 2014—(A) Individuals, estates, or trusts. An individual, estate, or trust may make an election under paragraph (g) of this section for a taxable year that begins before January 1, 2014.
(B) Certain domestic passthrough entities. A domestic partnership, S corporation, or common trust fund may make an election under paragraph (g) of this section for a taxable year that begins before January 1, 2014, provided that all of its partners, shareholders, or participants, as the case may be, consent to the election. In the case of a partner, shareholder, or participant that is a partnership, S corporation, or common trust fund, all of the partners, shareholders, and participants also must consent to the election.
(iv) Time for making election. In all cases, the election under paragraph (g) of this section must be made in the manner prescribed by forms, instructions, or in other guidance on the individual's, estate's, trust's, domestic partnership's, S corporation's, or common trust fund's original or amended return for the taxable year for which the election is made. An election can be made on an amended return only if the taxable year for which the election is made, and all taxable years that are affected by the election, are not closed by the period of limitations on assessments under section 6501. An individual, estate, trust, domestic partnership, S corporation, or common trust fund may not seek an extension of time to make the election under any other provision of the law, including § 301.9100 of this chapter.
(h) Examples. The following examples illustrate the rules of this section. In each example, unless otherwise indicated, the individuals, the foreign corporation (FC), the QEF (QEF), and the partnership (PRS) use a calendar taxable year. Further, the gross income or gain with respect to an interest in FC is not derived in a trade or business described in § 1.1411-5.
(i) Effective/applicability date. This section applies to taxable years beginning after December 31, 2013. However, taxpayers may apply this section to taxable years beginning after December 31, 2012, in accordance with § 1.1411-1(f). Paragraph (c)(3) of this section, to the extent it references regulations issued under section 367(b), and paragraph (d)(5) of this section, apply to transactions completed on or after October 5, 2023, and to any transactions treated as completed before October 5, 2023, as a result of an entity classification election made under § 301.7701-3 of this chapter that is filed on or after October 5, 2023.
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Treas. Reg. §1.1411-10(a)In general.
In general. This section provides rules that apply to an individual, estate, or trust that is a United States shareholder of a controlled foreign corporation (CFC), or that is a United States person that directly or indirectly owns an interest in a passive foreign investment company (PFIC). In addition, this section provides rules that apply to an individual, estate, or trust that owns an interest in a domestic partnership or an S corporation that is either a United States shareholder of a CFC or that has made an election under section 1295 to treat a PFIC as a qualified electing fund (QEF). References in this section to an election under paragraph (g) of this section being in effect relate to an election that is applicable to the person that is determining the section 1411 consequences with respect to holding a particular CFC or QEF.
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Treas. Reg. §1.1411-10(b)Amounts derived from a trade or business described in § 1.
Amounts derived from a trade or business described in § 1.1411-5—(1) In general. Except as provided in paragraph (b)(2) of this section, an amount included in gross income under section 951(a) or section 1293(a) that is also income derived from a trade or business described in section 1411(c)(2) and § 1.1411-5 (applying the relevant rules in § 1.1411-4(b)) is taken into account as net investment income under section 1411(c)(1)(A)(ii) and § 1.1411-4(a)(1)(ii) for purposes of section 1411 and the regulations thereunder when it is taken into account for purposes of chapter 1, and the rules in paragraphs (c) through (g) of this section do not apply to that amount. For purposes of section 1411 and the regulations thereunder, an amount included in gross income under section 1296(a) that is also income derived from a trade or business described in section 1411(c)(2) and § 1.1411-5 (applying the relevant rules in § 1.1411-4(b)), is net investment income within the meaning of section 1411(c)(1)(A)(ii) and § 1.1411-4(a)(1)(ii), and the rules in paragraph (c)(2)(ii) of this section do not apply to that amount.
(2) Coordination rule for changes in trade or business status. With respect to stock of a CFC or QEF for which an election under paragraph (g) of this section is not in effect, the rules in paragraphs (c) through (f) of this section apply to a distribution of earnings and profits described in paragraph (c)(1)(i)(A) of this section that was not taken into account as net investment income under paragraph (b) of this section.
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Treas. Reg. §1.1411-10(c)Calculation of net investment income—(1) Dividends.
Calculation of net investment income—(1) Dividends. For purposes of section 1411(c)(1)(A)(i) and § 1.1411-4(a)(1)(i), net investment income is calculated by taking into account the amount of dividends described in this paragraph (c)(1).
4 Citing Cases
ng tax on his 2013 and 2017 gains. 2 The notice of deficiency made two other adjustments for 2017: disallowance of a $4,050 personal exemption petitioner had claimed and a determination that he was liable for net investment income tax of $254 under section 1411. These adjust- ments were purely computational, triggered by the large adjustment to his 2017 taxa- ble income, and they are not separately at issue. 5 [*5] Petitioner’s argument has no legal basis. The doctrine of estoppel can be invoked
21. P is a U.S. citizen who resides in a foreign country. P filed a Federal income tax return claiming a carryover of her foreign tax credit for tax that she paid to France and Italy in prior years to offset the net investment income tax imposed by I.R.C. sec. 1411 for 2013. R assessed the I.R.C. sec. 1411 tax, determined without the credit, as a math error and an addition to tax for failure to pay a tax shown on a return under I.R.C. sec. 6651(a)(2). P did not pay the assessed amount. R issued
forth in the notice ofdeficiency as follows: (1) inclusion ofa taxable State income tax refund of$2,969; (2) adjustment to itemized deductions of$59; (3) alternative minimum tax (AMT) of$15,308; and (4) net investment income tax of$2,262 pursuant to sec. 1411. Petitioner disputes the accuracy-related penalty. - 3 - account for and compute the AMT or the net investment income tax, nor did he report his taxable State income tax refund. Petitioner prepared his 2013 Form 1040 without the use oftax p