On July 10, 2019, the Treasury Department released proposed regulations (REG-105474-18) on passive foreign investment companies under IRC Sections 1291, 1297 and 1298.

The proposed regulations contain significant guidance on various foundational issues and computational matters, including:

• Applying the corporate attribution rules "top-down" when a partnership indirectly holds a foreign corporation being tested for passive foreign investment company (PFIC) status (Tested Foreign Corporation) through another corporation that is not a PFIC

• Addressing certain computational and character issues that arise in applying the income and asset tests of IRC Section 1297(a), such as:
• Which exceptions under Subpart F from passive income treatment are relevant for PFIC testing purposes
• How to apply the tests to partnership interests held by the Tested Foreign Corporation
• How to treat stapled entities

• Specifying when rental income from unrelated persons is "active" for PFIC testing purposes
• Applying the IRC Section 1298(b)(3) change-of-business exception, including an expanded exception that considers the assets of the Tested Foreign Corporation
• Addressing the assets and income of a 25%-owned subsidiary under the IRC Section 1297(c) look-through rule
• Applying the IRC Section 1297(b)(2)(C) related-party look-through rule
• Applying the IRC Section 1298(b)(7) qualified stock exception, including new anti-abuse provisions
• Applying the IRC Section 1297(b)(2)(B) exception for insurance companies

A more detailed Tax Alert on the proposed regulations is forthcoming.