IRS NOTICE PROVIDES RELIEF FOR PFICs ELECTING QEF TREATMENT.

Notice 88-31

The Internal Revenue Service will amend the temporary regulations concerning passive foreign investment companies and the qualified electing fund election under section 1295 that were published in the Federal Register, 53 Fed. Reg. 6770 (March 2, 1988) (T.D.8178). The election must be made on or before March 14, 1988 for taxable years ending on or before December 31, 1987. The amended regulations will provide, however, that the qualified electing fund (QEF) election may be made by any shareholder of a passive foreign investment company (PFIC) that is a U.S. person provided the election is ratified by the PFIC no later than December 15, 1988. Section 1.1295-lT(b)(1) will be amended to permit the QEF election for taxable years ending before October 1, 1988, to be made on behalf of the PFIC by any shareholder of a PFIC that is a U.S. person (including any U.S. person that is a shareholder of a PFIC by application of the attribution rules of section 1297(a) of the Code). The election statement filed by a U.S. person who is a shareholder of the PFIC must have the heading, "Shareholder Section 1295 Election -- Subject to Corporate Ratification," and contain the information required by section 1.1295-lT(b)(2)(ii)(A), (B), and (C), to the extent known by the shareholder. The shareholder making the election also must provide his/her/its name, address, and taxpayer identification number, represent that he/she/it was a shareholder of the PFIC during the taxable year of the PFIC for which the election is made, and sign the election statement, under penalties of perjury, stating that the information and representation provided are true, correct and complete to the best of the shareholder's knowledge and belief. An election made by a shareholder must be filed with the Philadelphia Service Center, P.O. Box 21086, Philadelphia, PA 19114, before the 15th day of the third month following the taxable year of the PFIC for which the election is made. For taxable years ended on or before December 31, 1987, the election must be filed on or before March 14, 1988. Section 1.1295-lT(b)(1) will be amended to provide that an election made by a shareholder will be valid provided the PFIC, by December 15, 1988, reports to the Internal Revenue Service, at the Philadelphia address provided above, that it formally ratified the election made by the shareholder. The PFIC also must satisfy the other election requirements set forth in section 1.1295-lT(b) by December 15, 1988. Section 1.1295-lT(b)(1)(iii) of the temporary regulations also will be amended to apply to elections that must be filed before November 15, 1988. If a PFIC or its shareholder files a statement containing the information required in section 1.1295- lT(b)(2)(ii)(A), (B), and (C) by the 15th day of the third month following the taxable year of the PFIC for which the election is being made, the PFIC will have until December 15, 1988, to satisfy the other election requirements provided in section 1.1295-lT(b), including sending the shareholder notification and request for certification. Section 1.1295-lT(b)(6)(i), which requires annual reporting by the PFIC to the Internal Revenue Service, also will be amended. A PFIC whose election was made for its taxable year ending before July 1, 1988, will have until March 15, 1989, to satisfy the annual reporting requirement of section 1.1295-lT(b)(6). Section 1.1294-lT(c)(2) will be amended to provide that a shareholder who wishes to make the election under section 1294 to extend the time for payment of tax on its share of the undistributed earnings of the PFIC, but is required under section 1.1294-lT(c)(1) to make the election before March 15, 1989, will have until March 15, 1989, to amend its tax return and make the election under section 1294. TIME FOR MAILING ELECTIONS UNDER SECTION 1295 The Internal Revenue Service also will amend section 1.1295- lT(b)(1)(i) to modify the date an election under section 1295 mailed outside the United States must be postmarked to be considered filed by March 14, 1988. Section 1.1295-lT(b)(1)(i) provides that a foreign corporation electing to be a qualified electing fund must file its election before the 15th day of the third month following the year for which the election is made. An election mailed outside the United States in the manner described in that paragraph must be postmarked at least 10 calendar days before the due date. The Internal Revenue Service will amend section 1.1295-lT(b)(1)(i) to provide that an election under section 1295 that is due by March 14, 1988, and is mailed outside the United States will be timely filed if postmarked on or before March 14, 1988. EFFECTIVE DATE This document serves as an "administrative pronouncement" as that term is used in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied upon to the same extent as a revenue ruling or revenue procedure. See Rev. Rul. 87-138, 1987-52 I.R.B. 17. Taxpayers may rely on this notice until the amended regulations are published. The regulations will be effective for taxable years beginning after December 31, 1986. Questions concerning this notice may be directed to Gayle Novig of the Office of the Associate Chief Counsel (International), either by writing to CC:INTL:Br6, Room 3042, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC 20224, or by calling 202- 634-5428 (not a toll free number).