Rev. Proc. 64-17

Foreign investment companies which elected to distribute their income currently to their shareholders under the provisions of section 1247 of the Internal Revenue Code of 1954 and section 16.6-1 of the Temporary Income Tax Regulations published in the Federal Register on December 27, 1962, as T.D. 6627, C.B. 1963-1, 462, shall compute their taxable income for purposes of section 1247 of the Code and notify their shareholders of distributions made to them in the following manner pursuant to regulations to be subsequently published:

Under section 1247 of the Code foreign investment companies shall determine their taxable income in accordance with the provisions of section 1247 of the Code as if they were domestic corporations but without regard to subchapter N, chapter 1 of the Code. Furthermore, in determining the appropriate deduction for taxes under section 164 of the Code, there shall be included taxes paid or accrued to the United States and to the country under the laws of which the company was created or organized.

Within 45 days after the close of its taxable year a company must inform each shareholder receiving a distribution out of the company's excess of net long-term capital gain over net short-term capital loss with respect to such taxable year (hereinafter called capital gain) of the amount and date of each distribution. It must also notify each person who is a shareholder at the close of the taxable year of his portion, if any, of the capital gain which was not distributed for such year. Each notice shall show the name and address of the foreign investment company and the taxable year of the company with respect to which the designation is made. A company may make an irrevocable election to distribute, within 45 days after the close of its taxable year, a part or all of the capital gain and have such distribution treated as if made during the taxable year. The election shall be applicable to all of the company's shareholders and shall be made within 45 days by notifying the shareholders of the distribution.

If the foreign investment company elects under section 1247(f) of the Code to pass through to its shareholders its foreign income, war profits, and excess profits taxes which were paid during the taxable year by the company to foreign countries or possessions of the United States, then, in determining whether the company has distributed to its shareholders during such taxable year at least 90 percent of its taxable income, the company shall compute such taxable income without any deduction for such foreign taxes. The company shall treat as distributed to its shareholders as foreign taxes an amount which bears the same ratio to such foreign taxes as the income distributed during or with respect to such taxable year from its taxable income (computed with a deduction for such taxes), bears to the amount of such taxable income (also computed with a deduction for such taxes). The company shall furnish to each shareholder a written notice mailed not later than 45 days after the close of the taxable year of the company designating the shareholder's proportionate share of the foreign taxes deemed distributed.

Each foreign investment company must report its taxable income by filing on or before the 15th day of the third month following the close of its taxable year a Form 1120, U.S. Corporation Income Tax Return, modified so that it becomes an information return. In addition, if section 1247(f) of the Code is elected, the company will be required to file a Form 1118, Statement in Support of Credit Claimed by Domestic Corporation for Taxes Paid or Accrued to a Foreign Country or a Possession of the United States, modified so that it becomes a statement in support of the election made by the company under section 1247(f) of the Code. Any election by the company under the provisions of section 1247(a)(2)(B) or (f) of the Code must be made with such return.

A shareholder of a foreign investment company which elects to distribute its income shall treat such distributions in the following manner:

All distributions made by the company, including those made after the close of its taxable year, shall be included in gross income of the shareholder in his taxable year in which received. His pro rata share of any undistributed capital gain shall be treated as having been realized in his taxable year in which or with which the taxable year of the company ends.

Whenever a foreign investment company elects to pass through its foreign taxes to its shareholders, a shareholder shall include in his gross income his proportionate share of the company's foreign taxes which qualify under section 1247(f) of the Code for the taxable year of the election. In taking either a deduction or a creidt for his share of such taxes, a shareholder shall treat such taxes as having been received and paid by him in his same taxable year in which a distribution of taxable income with respect to the year of the election is reportable by him. If a company makes more than one distribution with respect to a taxable year, a shareholder receiving the distributions in different taxable years must allocate a pro rata amount of the taxes to each distribution.

¹ Based on Technical Information Release 541, dated Jan. 31, 1964.