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TITLE 26-INTERNAL REVENUE CODE (3) Taxpayer to establish earnings and profits Unless the taxpayer establishes the amount of the accumulated earnings and profits of the foreign investment company and the rat- able share thereof for the period durLng which the taxpayer held such stock, all the gain from the sale or exchange of stock in such company shall be considered as ordinary income. (4) Holding period of stock must be more than 9 months This section shall not apply with respect to the sale or exchange of stock where the hold- ing period of such stock as of the date of such sale or exchange is 9 months or less. (b) Definition of foreign investment company For purposes of this section, the term "for- eign investment company" means any foreign corporation which, for any taxable year begin- ning after December 31, 1962, is- (1) registered under the Investment Compa- ny Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), either as a management company or as a unit investment trust, or (2) engaged (or holding itself out as being engaged) primarily in the business of invest- ing, reinvesting, or trading in securities (within the meaning of section 3(a)(1) of such Act, as limited by paragraphs (2) through (10) (except paragraph (6)(C)) and paragraphs (12) through (15) of section 3(c) of such Act) at a time when more than 50 percent of the total combined voting power of all classes of stock entitled to vote, or of the total value of shares of all classes of stock, was held, direct- ly or indirectly (within the meaning of sec- tion 958(a)), by United States persons (as de- fined in section 7701(a)(30)). (c) Stock having transferred or substituted basis To the extent provided in regulations pre- scribed by the Secretary, stock in a foreign cor- poration, the basis of which (in the hands of the taxpayer selling or exchanging such stock) is determined by reference to the basis (in the hands of such taxpayer or any other person) of stock in a foreign investment company, shall be treated as stock of a foreign investment compa- ny and held by the taxpayer throughout the holding period for such stock (determined under section 1223). (d) Rules relating to entities holding foreign invest. ment company stock To the extent provided in regulations pre- scribed by the Secretary- (1) trust certificates of a trust to which sec- tion 677 (relating to income for benefit of grantor) applies, and (2) stock of a domestic corporation, shall be treated as stock of a foreign investment company and held by the taxpayer throughout the holding period for such certificates or stock (determined under section 1223) in the same proportion that the investment in stock in a foreign investment company by the trust or do- mestic corporation bears to the total assets of such trust or corporation. (e) Information with respect to certain foreign invest- ment companies Every United States person who, on the last day of the taxable year of a foreign investment company, owns 5 percent or more in value of the stock of such company shall furnish with respect to such company such information as the Secretary shall by regulations prescribe. (f) Cross reference For special rules relating to the earnings and profits of foreign investment companies, see section 312(). (Added Pub. L. 87-834, § 14(a)(1), Oct. 16, 1962, 76 Stat. 1036, and aiaended Pub. L. 94-455, title XIV, § 1402(b)(1)(W), title XIX, §§ 1901(a)(141), (b)(3)(I), (32)(B)(ii), 1906(b)(13)(A), title XY, § 2005(a)(5), Oct. 4, 1976, 90 Stat. 1732, 1787, 1793, 1800, 1834, 1877.) TAXABLE YEARS AFTER 1977 Subsec. (a)(4) of this section amended by Pub. L. 94-455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, effective with respect to taxable years beginning after Dec. 31, 1977, by substituting "1 year"for "9 months". REFERENCES IN TEXT The Investment Company Act of 1940, as amended, referred to in subsec. (b)(1), is act Aug. 22, 1940, ch. 686, title 1, 54 Stat. 789, as amended, which is classi. fied generally to subchapter I (§ 80a-1 et seq.) of chap- ter 2D of Title 15, Commerce and Trade. Sections 3(a)(1) and 3(c) of such Act, referred to in subsec. (b)(2), are classified to sections 80a-3(a)(1) and 80a- 3(c) of Title 15. For complete classification of this Act to the Code, see section 80a-51 of Title 15 and Tables volume. AMENDMENTS 1976-Subsecs. (a)(1), (2), (3). Pub. L. 94-455, § 1901(b)(3)(I). substituted "ordinary income" for "gain from the sale or exchange of property which is not a capital asset". § 1901(b)(13)(A) struck out "or his delegate", following "Secretary". Subsec. (a)(4). Pub. L. 94-455, § 1402(b)(1)(W), pro- vided that "6 months" would be changed to "9 months" for taxable years beginning in 1977. Subsecs. (c), (d). Pub. L. 94-455, § 1906(b)(13)(a), struck out "or his delegate" following "Secretary". Subsec. (e). Pub. L. 94-455, §§ 1901(a)(141), 1906(b)(13)(A), 2005(a)(5), struck out "beginning after December 31, 1962" following "foreign investment company", and "or his delegate" following "Secre- tary", redesignated such amended subsec. (f) as (e), and struck out subsec. (e) providing for rules relating to stock acquired from a decedent, pars. (1) and (2) thereof being concerned with basis and deduction for estate tax. Subsec. (). Pub. L. 94-455, §§ 1901(b)(32)(B)(i), 2005(a)(5), substituted "section 312(j)" for "section 312(l)" and redesignated such amended former subsec. (g) as (). Former subsec. f) redesignated Ce). Subsec. (g). Pub. L. 94-455, § 2005(a)(5), redesignated former subsec. (g) as (f). EFFECTIVE DATE OF 1976 AMENDMENT Section 1402(b)(1) of Pub. L. 94-455 provided in part that the substitution of "9 months" for "6 months" in subsec. (a)(4) of this section by section 1402(b)(1)(W) of Pub. L. 94-455 is effective with respect to taxable years beginning in 1977. Amendment of subsecs. (a)(1), (3), (e), (f) by section 1901(a)(141), (b)(3)(I), (32)(B)(ii) of Pub. L. 94-455 ef- fective for taxable years beginning after Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an Ef- fective Date of 1976 Amendment note under section 2 of this title. Amendment of subsecs. (e), (f), (g) by section 2005(a)(5) of Pub. L. 94-455 applicable in respect of de- cedents dying after Dec. 31, 1976, see section 2005(f)(1) of Pub. L. 94-455, set out as an Effective Date note under section 1023 of this title. Page 699 § 1246