Mark-to-Market Election for Marketable Stock

§ 1296. Election of mark to market for marketable stock(a) General ruleIn the case of marketable stock in a passive foreign investment company which is owned (or treated under subsection (g) as owned) by a United States person at the close of any taxable year of such person, at the election of such person—(1) If the fair market value of such stock as of the close of such taxable year exceeds its adjusted basis, such United States person shall include in gross income for such taxable year an amount equal to the amount of such excess. (2) If the adjusted basis of such stock exceeds the fair market value of such stock as of the close of such taxable year, such United States person shall be allowed a deduction for such taxable year equal to the lesser of—(A) the amount of such excess, or (B) the unreversed inclusions with respect to such stock. (b) Basis adjustments(1) In generalThe adjusted basis of stock in a passive foreign investment company—(A) shall be increased by the amount included in the gross income of the United States person under subsection (a)(1) with respect to such stock, and (B) shall be decreased by the amount allowed as a deduction to the United States person under subsection (a)(2) with respect to such stock. (2) Special rule for stock constructively ownedIn the case of stock in a passive foreign investment company which the United States person is treated as owning under subsection (g)—(A) the adjustments under paragraph (1) shall apply to such stock in the hands of the person actually holding such stock but only for purposes of determining the subsequent treatment under this chapter of the United States person with respect to such stock, and (B) similar adjustments shall be made to the adjusted basis of the property by reason of which the United States person is treated as owning such stock. (c) Character and source rules(1) Ordinary treatment(A) GainAny amount included in gross income under subsection (a)(1), and any gain on the sale or other disposition of marketable stock in a passive foreign investment company (with respect to which an election under this section is in effect), shall be treated as ordinary income. (B) LossAny—(i) amount allowed as a deduction under subsection (a)(2), and (ii) loss on the sale or other disposition of marketable stock in a passive foreign investment company (with respect to which an election under this section is in effect) to the extent that the amount of such loss does not exceed the unreversed inclusions with respect to such stock, shall be treated as an ordinary loss. The amount so treated shall be treated as a deduction allowable in computing adjusted gross income. (2) SourceThe source of any amount included in gross income under subsection (a)(1) (or allowed as a deduction under subsection (a)(2)) shall be determined in the same manner as if such amount were gain or loss (as the case may be) from the sale of stock in the passive foreign investment company.