n-98-22.pdf

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# Part III

Administrative, Procedural, and Miscellaneous

Application of § 1.1295-1T (b) (4), (f) and (g) to taxable years
beginning before January 1, 1998

Notice 98-22

This notice provides guidance to direct or indirect
shareholders of passive foreign investment companies (PFICs), as
defined in section 1297 of the Internal Revenue Code, concerning
the effective date of $ 1.1295-1T (b) (4), (f), and (g) of the
temporary regulations published in the Federal Register on
January 2, 1998, as T.D. 8750. As described below, final
regulations under section 1295 will permit shareholders of PFICs
to apply the rules of $ 1.1295-1T (b) (4), the rules of § 1.1295-
1T (f) and (g), or both sets of rules to a taxable year beginning
before January 1, 1998, for which the period of limitations has
not run as of the date of publication of this notice, provided
that, in the case of $ 1.1295-1T (b) (4), the shareholders
consistently apply the rules to all subsequent taxable years.

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## BACKGROUND

Section 1.1295-1T (b) (4) of the temporary regulations
provides rules concerning a section 1295 election made by a
taxpayer on a joint return under section 6013. Section 1.1295-
1T (f) and (g) provide simplified rules concerning the manner of
making and maintaining a section 1295 election to treat a PFIC as
a qualified electing fund (QEF) . Prior to the publication of
§ 1.1295-1T (f) and (g), Notice 88-125, 1988-2 C.B. 535, provided
such guidance. Under $ 1.1295-1T (k), § 1.1295-1T (b) (4), (f), and
(g) is effective for taxable years of shareholders beginning
after December 31, 1997.

## APPLICATION TO EARLIER TAXABLE YEARS

Commenters have requested that § 1.1295-1T (b) (4) apply on an
elective basis to taxable years beginning before January 1, 1998,
to provide taxpayers certainty with respect to elections made on
joint returns for such years. Commenters also requested that
§ 1.1295-1T (f) and (g) apply on an elective basis to taxable
years beginning before January 1, 1998, to enable taxpayers to
use the simplified reporting procedures for 1997. In response to
these comments, the final regulations will permit taxpayers to
apply the rules of temporary regulations § 1.1295-1T (b) (4), the
rules of § 1.1295-1T (f) and (g), or both sets of rules, to a
taxable year beginning before January 1, 1998, for which the
statute of limitations on the assessment of tax has not expired
as of the date of publication of this notice. Taxpayers that

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filed a joint return in which the section 1295 election was made
may only apply the rules of $1.1295-1T (b) (4) if they have
consistently applied the rules of that section to all taxable
years following the year in which the election was made and for
which the statute of limitations for the assessment of tax is
open. Subject to this consistency requirement, the rule of
$1.1295-1T (b) (4) may be applied to any open year even if the
section 1295 election was made in a year for which the statute of
limitations has expired. No action other than treatment
consistent with an effective section 1295 election is necessary
for the section 1295 election to be treated as made by both
spouses .

## PAPERWORK REDUCTION ACT

The collections of information requirements contained in the
temporary regulations to which this notice applies were reviewed
and, pending receipt and evaluation of public comments, approved
by the Office of Management and Budget (OMB) in accordance with
the Paperwork Reduction Act (44 U.S.C. 3507) under control number
1545-1555.

FOR FURTHER INFORMATION CONTACT Teresa Hughes at (202) 622-3840
(not a toll-free call) .