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On April 14, 2014, the IRS released Notice 2014-28, 2014-18 IRB 990, which said that IRS and Treasury will amend the Temporary Regulations in TD 9650, December 30, 2013,2 relating to the treatment of U.S. persons that own stock of a passive foreign investment company (PFIC) through certain tax-exempt organizations or accounts. In particular, the Notice says that the Regulations will be amended to clarify that U.S. persons owning stock of a PFIC through a tax-exempt organization or account (as described in Temp. Reg. 1.1298-1T(c)(1)) are not attributed ownership of the PFIC for purposes of applying the PFIC rules. As a result, U.S. persons that are beneficiaries of or have interests in a taxexempt organization or account (e.g., an individual retirement account (IRA) or a Section 529 plan) that own stock of a PFIC will not be subject to tax and reporting obligations under the PFIC rules.
Background. Section 1298(a) provides attribution rules pursuant to which a U.S. person is treated as owning PFIC stock that is owned by another person. These rules do not apply to treat stock owned (or treated as owned) by a U.S. person as owned by any other person, except to the extent provided in Regulations. Until recently, the only Regulations issued under Section 1298(a) were 1992 Proposed Regulations that contained rules attributing ownership from one U.S. person to another in certain circumstances, but were never finalized. Thus, no effective guidance extended the reach of Section 1298(a) to attribute PFIC stock from one U.S. person to another.
The 2013 Temporary Regulations in TD 9650 included (1) reporting and ownership attribution rules with respect to U.S. persons...