§ 1.1293-1. Current taxation of income from qualified electing funds.
(a) ***
(3) Pass-through entity defined.— For purposes of this section, the term pass-through entity has the meaning provided in §1.1295-1(j)(2).
(4) Applicability dates.— Paragraph (a)(3) of this section applies to taxable years of shareholders beginning on or after [date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register].
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(a) ***
(1) In general.— Except as otherwise provided in this paragraph (c), a shareholder that makes a section 1295 election as provided in §1.1295-1(d)(2) with respect to stock in a PFIC that it is treated as owning by reason of an interest in a pass-through entity, or a shareholder that is treated as owning stock in a QEF by reason of an interest in a domestic partnership that has made a preexisting partnership section 1295 election (within the meaning of §1.1295-1(d)(2)(i)(13)) or in an S corporation that has made a preexisting S corporation section 1295 election (within the meaning of §1.1295-1(d)(2)(ii)(13)), includes in income its pro rata share of ordinary earnings and net capital gain attributable to the QEF stock as if the shareholder directly owned its share of the QEF stock held by the pass-through entity.
(2) Section 1295 election made by domestic nongrantor trust or domestic estate.— Notwithstanding paragraph (c)(1) of this section, if a domestic nongrantor trust or domestic estate makes a section 1295 election as provided in §1.1295-1(d)(2)(iii)(A)(1) with respect to PFIC stock that it owns, the domestic nongrantor trust or domestic estate includes in income its pro rata share of ordinary earnings and net capital gain attributable to the QEF stock. A shareholder that is treated as owning such QEF stock by reason of an interest in the domestic nongrantor trust or domestic estate accounts for its pro rata share of ordinary earnings and net capital gain attributable to such stock according to the general rules applicable to inclusions of income from the domestic nongrantor trust or domestic estate.
(3) QEF stock transferred to a pass-through entity.—
(i) In general.— Except as otherwise provided in this paragraph (c)(3), if a shareholder transfers stock in a PFIC subject to a section 1295 election to a pass-through entity in which it is an interest holder, such shareholder continues to include in income its pro rata share of ordinary earnings and net capital gain attributable to the QEF stock held by the transferee pass-through entity, under paragraph (c)(1) of this section. Proper adjustments to reflect an inclusion in income under section 1293 by the indirect shareholder must be made, under the principles of §1.1291-9(f), to the basis of the indirect shareholder’s interest in the pass-through entity.
(ii) Shareholders other than the transferor.— Except as otherwise provided in this paragraph (c)(3), if a shareholder transfers stock in a PFIC subject to a section 1295 election to a pass-through entity and such stock is not subject to a preexisting QEF election made by the pass-through entity, any other person that becomes a shareholder of such PFIC as a result of the transfer will be subject to the income inclusion rules of this section only if such person makes a section 1295 election with respect to the transferred PFIC stock under §1.1295-1(d)(2).
(iii) QEF stock transferred to domestic nongrantor trust.— Notwithstanding paragraphs (c)(3)(i) and (ii) of this section, if a shareholder transfers stock in a PFIC subject to a section 1295 election to a domestic nongrantor trust in which it is a beneficiary, and the transferee domestic nongrantor trust makes a section 1295 election with respect to that stock pursuant to §1.1295-1(d)(2)(iii)(A)(1), the domestic nongrantor trust, and the transferor and any person that becomes a shareholder of the QEF as a result of the transfer, take into account their share of ordinary earnings and net capital gain attributable to the QEF shares under paragraph (c)(2) of this section. If the transferee domestic nongrantor trust does not make a section 1295 election with respect to the transferred PFIC stock, the transferor continues to be subject, in its capacity as an indirect shareholder, to the income inclusion rules of paragraph (c)(1) of this section.
(4) Applicability date.— Paragraph (c) of this section applies to taxable years of shareholders beginning on or after [date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register]. For taxable years of shareholders beginning before [date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register], see §1.1293-1(c), as in effect and contained in 26 CFR part 1, as revised April 1, 2021. [Prop. Reg. §1.1293-1.]
[Proposed 1-25-2022.]