[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1247-1]

[Page 370-372]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1247-1  Election by foreign investment companies to distribute 
income currently.

    (a) Election by foreign investment company--(1) In general. If a 
registered foreign investment company (as defined in paragraph (b) of 
this section) elects, on or before December 31, 1962, with respect to 
each of its taxable years beginning after December 31, 1962, to comply 
with the requirements of subparagraph (2) of this paragraph, then 
section 1246 (relating to gain on foreign investment company stock) 
shall not apply with respect to a qualified shareholder (as defined in 
paragraph (b) of Sec. 1.1247-3) of such company who disposes of his 
stock during any taxable year of the company to which such election 
applies. See section 1247(a)(1).
    (2) Requirements. A registered foreign investment company which 
makes an election under section 1247(a) shall, with respect to each of 
its taxable years beginning after December 31,

[[Page 371]]

1962, comply with the following requirements:
    (i) Under section 1247(a)(1)(A), the company shall distribute to its 
shareholders, during the taxable year, 90 percent or more of what its 
taxable income would be for such taxable year if it were a domestic 
corporation. To the extent elected by the company under section 
1247(a)(2)(B), a distribution of taxable income made not later than 2 
months and 15 days after the close of the taxable year shall be treated 
as distributed during such taxable year. For rules relating to 
computation of taxable income for a taxable year and distributions of 
such taxable income, see Sec. 1.1247-2.
    (ii) Under section 1247(a)(1)(B), the company shall designate to 
each shareholder the amount of his pro rata share of the excess of the 
net long-term capital gain over the net short-term capital loss for the 
taxable year and the amount thereof which is being distributed. For the 
manner of designating and the computation of such amounts, see Sec. 
1.1247-3.
    (iii) Under section 1247(a)(1)(C), the company shall provide the 
information and maintain the records required by Sec. 1.1247-5.
    (b) Definition of registered foreign investment company. The term 
registered foreign investment company means a foreign corporation which 
is registered within the time specified in this paragraph under the 
Investment Company Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), 
either as a management company or as a unit investment trust. Under such 
Act, a company is deemed registered upon receipt by the Securities and 
Exchange Commission of Form N-8A entitled Notification of Registration 
Filed Pursuant to Section 8(a) of the Investment Company Act of 1940. 
See section 8(a) of such Act (15 U.S.C. 80a-8(a)) and 17 CFR 274.10. A 
company which computes its income on the basis of a calendar year must 
have registered on or before December 31, 1962, and a company which 
computes its income on the basis of a fiscal year must have registered 
on or before the last day of its fiscal year beginning in 1962 and 
ending in 1963.
    (c) Time and manner of making election--(1) In general. The election 
provided by paragraph (a) of this section must have been made on or 
before December 31, 1962, by means of a letter addressed to the Director 
of Interna- Service, Washington, DC 20225, which clearly stated that the 
company elects to comply with the provisions of section 1247. The letter 
must have been signed by an officer of the foreign investment company 
who was a resident of the United States and who was duly authorized to 
act on behalf of the company.
    (2) Information furnished. The following information must have been 
submitted in connection with the election:
    (i) The name, address, and employer identification number, if any, 
and the taxable year of the company;
    (ii) The principal place of business of the company;
    (iii) The date and the country under whose laws the company was 
incorporated;
    (iv) The date of filing with the Securities and Exchange Commission, 
and the file number, of Form N-8A;
    (v) The names and addresses of all of the company's directors and 
officers and of any custodian or agent of the company located in the 
United States; and
    (vi) The name and address of the person (or persons) in the United 
States having custody of the books of account, records, and other 
documents of the company, and the location of such books, records, and 
other documents if different from such address.
    (3) Time information furnished. (i) If a foreign investment company 
was registered with the Securities and Exchange Commission on the date 
of election, all the information required by subparagraph (2) of this 
paragraph must have been submitted with the election.
    (ii) If a foreign investment company made its election before it was 
so registered, the information required by subparagraph (2) (i), (ii), 
and (iii) of this paragraph must have been submitted with the election 
and the information required by subparagraph (2) (iv), (v), and (vi) of 
this paragraph must have been submitted within 60 days following receipt 
by the Securities and Exchange Commission of Form N-8A.

[[Page 372]]

    (d) Termination of election--(1) General. Section 1247(b) provides 
that the election of a foreign investment company under section 1247(a) 
shall permanently terminate as of the close of the taxable year 
preceding its first taxable year in which any of the following occurs:
    (i) The company fails to comply with the provisions of section 
1247(a)(1) (A), (B), or (C), unless it is shown that such failure is due 
to reasonable cause and not due to willful neglect;
    (ii) The company is a foreign personal holding company as defined in 
section 552; or
    (iii) The company ceases to be a registered foreign investment 
company which is described in paragraph (b) of this section. A company 
ceases to be a registered company, for example, as of the time the 
Securities and Exchange Commission revokes its order permitting 
registration of the company.
    (2) Reasonable cause. Whether a failure by a foreign investment 
company to comply with the provisions of section 1247(a)(1) (A), (B), or 
(C) is due to reasonable cause and not due to willful neglect depends on 
whether the company exercised ordinary business care and prudence. For 
example, if in determining its taxable income under section 1247(a) the 
company relied in good faith upon estimates and opinions of independent 
certified public accountants or other experts which are also used for 
purposes of its financial statements filed with the Securities and 
Exchange Commission under the Investment Company Act of 1940, such 
reliance would constitute reasonable cause for purposes of this 
paragraph. In such a case, the company's election under section 1247(a) 
for the taxable year would not be terminated nor would the company be 
required to make an additional distribution for such taxable year in 
order to comply with the provisions of section 1247(a)(1)(A).

[T.D. 6798, 30 FR 1174, Feb. 4, 1965]