SECTION 6. FOREIGN INVESTMENT

COMPANIES

.01 In General

Section 1(h)(11)(C)(iii) of the Code excludes FICs from the definition of qualified foreign corporation. Therefore, actual dividends received by U.S. individuals who are shareholders of a FIC are not qualified dividend income. Likewise, a shareholder’s pro rata share of a FIC’s post–1962 accumulated earnings and profits following the sale of FIC stock is not qualified dividend income. Similarly, amounts distributed as ordinary income by a FIC that has a section 1247 election in effect also are not qualified dividend income. Further, a dividend from a foreign corporation that is not a FIC but was a FIC in the preceding taxable year is not qualified dividend income.

.02 FICs that are also CFCs

A foreign corporation may be both a FIC and a CFC. Because a foreign corporation that is both a FIC and a CFC continues to be a FIC, any dividends or other distributions taxable as ordinary income from that corporation are not qualified dividend income.