Section 1291 Fund

105 34 1122 b 3 amended heading and text of subpar.

Section 1291 fund. It is called the excess distribution rule. The part of the distribution received from a section 1291 fund in the current tax year that is greater than 125 of the average distributions received in respect to such stock by the shareholder during the 3 preceding tax years or if shorter the portion of the shareholder s holding period before the current tax year. A distribution may be partly or wholly an excess distribution.

A pfic is a section 1291 fund with respect to a shareholder unless the pfic is a pedigreed qef with respect to the shareholder or a section 1296 election is in effect with respect to the shareholder. Fortunately irc section 1291 d 2 works in tandem with a qef election to cleanse the 1291 taint associated with pre election taxable years. 1291 taxation is very complex and convoluted but the basic premise is that the taxpayer will be treated as if any gain in the investment were received evenly over the period of ownership and that the taxpayer was in the highest tax bracket during each year other than the current.

105 206 inserted at end in the case of stock which is marked to market under section 475 or any other provision of this chapter this section shall not apply except that rules similar to the rules of section 1296 j shall apply 1997 subsec. 3 through 6 reserved 7 shareholder. All pfics that do not currently have mark to market or qualifying electing fund elections are taxed under 1291 of the internal revenue code.

Section 1291 fund the section 1291 fund election excess distribution is the default taxation method unless the taxpayer chooses either of the two alternatives. V section 1291 fund. This section of a section 1291 fund as defined in paragraph b 2 v of this section is subject to the special rules under section 1291 and these regulations with respect to gain recognized on direct and indirect dispositions of stock of the section 1291 fund and upon certain direct and indirect distributions by the section 1291 fund.

The default pfic taxation rule is in section 1291. 1291 pfic taxation regime excess distributions received from pfics are allocated pro rata to each day in the investor s holding period and are subject to interest charges on taxes deemed to be owed in preceding tax. The tax cost to cleanse section 1291 taint is taxation in the year of election.