SECTION 3. QUALIFYING FOREIGN

GOVERNMENT BONDS HELD BY ACTIVE BANKS

Recent economic conditions have resulted in a shift in the assets held by some non-U.S. financial institutions. As a result of these conditions, certain financial institutions are holding government bonds at higher than historical levels. These increased levels have raised an issue concerning the treatment of these financial institutions, and specifically the treatment of government bonds, under the PFIC rules.

This notice announces that, solely for purposes of section 1297 and the taxable years provided in Section 4 of this notice, the income from Qualifying Government Bonds held by an Active Bank qualifies for the active banking exception.

For purposes of this notice, the following terms have the meanings set forth below:

Active Bank . For any taxable year set forth in Section 4 of this notice, an Active Bank is a foreign corporation that:

(i) would not be a PFIC for such taxable year as a result of the application of the active banking exception if the treatment of Qualifying Government Bonds described in this Section 3 applied (and taking into account, if applicable, section 1297(c));

(ii) was not in any prior taxable year beginning in the preceding five calendar years a PFIC, in each case as a result of the application of the active banking ex

ception (taking into account, if applicable, the treatment of Qualifying Government Bonds described in this Section 3 for taxable years set forth in Section 4 of this notice and section 1297(c)); and

(iii) is, and was in each taxable year beginning in the preceding five calendar years, a publicly traded corporation. For purposes of this notice, a corporation will be treated as a publicly traded corporation if (1) one or more classes of stock is regularly traded on a qualified exchange or other market (within the meaning of § 1.1296–2), or (2) at least 50 percent of the aggregate vote and value of the shares in the corporation is owned directly or indirectly by another corporation described in clause (1) of this subparagraph.

Qualifying Government Bond . Qualifying Government Bond means a bond or similar instrument that has been issued by the government of the country (or any political subdivision, agency, instrumentality, or local authority thereof) under the laws of which the Active Bank is created or organized.