---
kind: "section"
citation: "26 U.S.C. § 1296"
title: "26"
title_heading: "Internal Revenue Code"
number: "1296"
heading: "Election of mark to market for marketable stock"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1296"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter P — Capital Gains and Losses"
  - "Part VI — Treatment of Certain Passive Foreign Investment Companies"
  - "Subpart C — Election of Mark to Market for Marketable Stock"
---

# §1296. Election of mark to market for marketable stock

- (a) **General rule—** In the case of marketable [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) which is owned (or treated under [subsection (g)](#g) as owned) by a [United States](/usc/26/993.md?p=g) person at the close of any taxable year of such person, at the election of such person—
  - (1) If the fair market [value](/usc/26/851.md?p=c-4) of such [stock](/usc/26/1504.md?p=a-4) as of the close of such taxable year exceeds its adjusted basis, such [United States](/usc/26/993.md?p=g) 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](/usc/26/1504.md?p=a-4) exceeds the fair market [value](/usc/26/851.md?p=c-4) of such [stock](/usc/26/1504.md?p=a-4) as of the close of such taxable year, such [United States](/usc/26/993.md?p=g) 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](/usc/26/1504.md?p=a-4).
- (b) **Basis adjustments—**
  - (1) **In general—** The adjusted basis of [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii)—
    - (A) shall be increased by the amount included in the gross income of the [United States](/usc/26/993.md?p=g) person under [subsection (a)(1)](#a-1) with respect to such [stock](/usc/26/1504.md?p=a-4), and
    - (B) shall be decreased by the amount allowed as a deduction to the [United States](/usc/26/993.md?p=g) person under [subsection (a)(2)](#a-2) with respect to such [stock](/usc/26/1504.md?p=a-4).
  - (2) **Special rule for stock constructively owned—** In the case of [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) which the [United States](/usc/26/993.md?p=g) person is treated as owning under [subsection (g)](#g)—
    - (A) the adjustments under [paragraph (1)](#b-1) shall apply to such [stock](/usc/26/1504.md?p=a-4) in the hands of the person actually holding such [stock](/usc/26/1504.md?p=a-4) but only for purposes of determining the subsequent treatment under this chapter of the [United States](/usc/26/993.md?p=g) person with respect to such [stock](/usc/26/1504.md?p=a-4), and
    - (B) similar adjustments shall be made to the adjusted basis of the [property](/usc/26/317.md?p=a) by reason of which the [United States](/usc/26/993.md?p=g) person is treated as owning such [stock](/usc/26/1504.md?p=a-4).
- (c) **Character and source rules—**
  - (1) **Ordinary treatment—**
    - (A) **Gain—** Any amount included in gross income under [subsection (a)(1)](#a-1), and any gain on the sale or other [disposition](/usc/26/424.md?p=c-1) of marketable [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) (with respect to which an election under this section is in effect), shall be treated as ordinary income.
    - (B) **Loss—** Any—
      - (i) amount allowed as a deduction under [subsection (a)(2)](#a-2), and
      - (ii) loss on the sale or other [disposition](/usc/26/424.md?p=c-1) of marketable [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) (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](/usc/26/1504.md?p=a-4),

      shall be treated as an ordinary loss. The amount so treated shall be treated as a deduction allowable in computing [adjusted gross income](/usc/26/62.md?p=a).

  - (2) **Source—** The source of any amount included in gross income under [subsection (a)(1)](#a-1) (or allowed as a deduction under [subsection (a)(2)](#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](/usc/26/1504.md?p=a-4) in the passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii).
- (d) **Unreversed inclusions—** For purposes of this section, the term “unreversed inclusions” means, with respect to any [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii), the excess (if any) of—
  - (1) the amount included in gross income of the [taxpayer](/usc/26/1313.md?p=b) under [subsection (a)(1)](#a-1) with respect to such [stock](/usc/26/1504.md?p=a-4) for prior taxable years, over
  - (2) the amount allowed as a deduction under [subsection (a)(2)](#a-2) with respect to such [stock](/usc/26/1504.md?p=a-4) for prior taxable years.

  The amount referred to in [paragraph (1)](#d-1) shall include any amount which would have been included in gross income under [subsection (a)(1)](#a-1) with respect to such [stock](/usc/26/1504.md?p=a-4) for any prior taxable year but for section 1291. In the case of a [regulated investment company](/usc/26/851.md?p=a) which elected to mark to market the [stock](/usc/26/1504.md?p=a-4) held by such [company](/usc/26/812.md?p=a) as of the last day of the taxable year preceding such [company](/usc/26/812.md?p=a)’s first taxable year for which such [company](/usc/26/812.md?p=a) elects the application of this section, the amount referred to in [paragraph (1)](#d-1) shall include amounts included in gross income under such mark to market with respect to such [stock](/usc/26/1504.md?p=a-4) for prior taxable years.

- (e) **Marketable stock—** For purposes of this section—
  - (1) **In general—** The term “marketable [stock](/usc/26/1504.md?p=a-4)” means—
    - (A) any [stock](/usc/26/1504.md?p=a-4) which is regularly traded on—
      - (i) a national [securities](/usc/26/368.md?p=a-2-F-vii) exchange which is registered with the [Securities](/usc/26/368.md?p=a-2-F-vii) and Exchange Commission or the national market system established pursuant to section 11A of the [Securities](/usc/26/368.md?p=a-2-F-vii) and Exchange Act of 1934, or
      - (ii) any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this part,
    - (B) to the extent provided in regulations, [stock](/usc/26/1504.md?p=a-4) in any foreign corporation which is comparable to a [regulated investment company](/usc/26/851.md?p=a) and which offers for sale or has outstanding any [stock](/usc/26/1504.md?p=a-4) of which it is the issuer and which is redeemable at its net asset [value](/usc/26/851.md?p=c-4), and
    - (C) to the extent provided in regulations, any option on [stock](/usc/26/1504.md?p=a-4) described in subparagraph [(A)](#e-1-A) or [(B)](#e-1-B).
  - (2) **Special rule for regulated investment companies—** In the case of any [regulated investment company](/usc/26/851.md?p=a) which is offering for sale or has outstanding any [stock](/usc/26/1504.md?p=a-4) of which it is the issuer and which is redeemable at its net asset [value](/usc/26/851.md?p=c-4), all [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) which it owns directly or [indirectly](/usc/26/101.md?p=a-3-B) shall be treated as marketable [stock](/usc/26/1504.md?p=a-4) for purposes of this section. Except as provided in regulations, similar treatment as marketable [stock](/usc/26/1504.md?p=a-4) shall apply in the case of any other [regulated investment company](/usc/26/851.md?p=a) which publishes net asset valuations at least annually.
- (f) **Treatment of controlled foreign corporations which are shareholders in passive foreign investment companies—** In the case of a foreign corporation which is a controlled foreign corporation and which owns (or is treated under [subsection (g)](#g) as owning) [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii)—
  - (1) this section (other than [subsection (c)(2)](#c-2)) shall apply to such foreign corporation in the same manner as if such corporation were a [United States](/usc/26/993.md?p=g) person, and
  - (2) for purposes of subpart F of part III of subchapter N—
    - (A) any amount included in gross income under [subsection (a)(1)](#a-1) shall be treated as foreign [personal holding company](/usc/26/542.md?p=a) income described in [section 954(c)(1)(A)](/usc/26/954.md?p=c-1-A), and
    - (B) any amount allowed as a deduction under [subsection (a)(2)](#a-2) shall be treated as a deduction allocable to foreign [personal holding company](/usc/26/542.md?p=a) income so described.
- (g) **Stock owned through certain foreign entities—** Except as provided in regulations—
  - (1) **In general—** For purposes of this section, [stock](/usc/26/1504.md?p=a-4) owned, directly or [indirectly](/usc/26/101.md?p=a-3-B), by or for a foreign [partnership](/usc/26/761.md?p=a) or foreign trust or foreign [estate](/usc/26/1361.md?p=c-3) shall be considered as being owned proportionately by its [partners](/usc/26/761.md?p=b) or beneficiaries. [Stock](/usc/26/1504.md?p=a-4) considered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person.
  - (2) **Treatment of certain dispositions—** In any case in which a [United States](/usc/26/993.md?p=g) person is treated as owning [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) by reason of [paragraph (1)](#g-1)—
    - (A) any [disposition](/usc/26/424.md?p=c-1) by the [United States](/usc/26/993.md?p=g) person or by any other person which results in the [United States](/usc/26/993.md?p=g) person being treated as no longer owning such [stock](/usc/26/1504.md?p=a-4), and
    - (B) any [disposition](/usc/26/424.md?p=c-1) by the person owning such [stock](/usc/26/1504.md?p=a-4),

    shall be treated as a [disposition](/usc/26/424.md?p=c-1) by the [United States](/usc/26/993.md?p=g) person of the [stock](/usc/26/1504.md?p=a-4) in the passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii).

- (h) **Coordination with section 851(b)—** For purposes of [section 851(b)(2)](/usc/26/851.md?p=b-2), any amount included in gross income under [subsection (a)](#a) shall be treated as a [dividend](/usc/26/316.md?p=a).
- (i) **Stock acquired from a decedent—** In the case of [stock](/usc/26/1504.md?p=a-4) of a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) which is acquired by bequest, devise, or inheritance (or by the decedent’s [estate](/usc/26/1361.md?p=c-3)) and with respect to which an election under this section was in effect as of the date of the decedent’s death, notwithstanding [section 1014](/usc/26/1014.md), the basis of such [stock](/usc/26/1504.md?p=a-4) in the hands of the person so acquiring it shall be the adjusted basis of such [stock](/usc/26/1504.md?p=a-4) in the hands of the decedent immediately before his death (or, if lesser, the basis which would have been determined under [section 1014](/usc/26/1014.md) without regard to this subsection).
- (j) **Coordination with section 1291 for first year of election—**
  - (1) **Taxpayers other than regulated investment companies—**
    - (A) **In general—** If the [taxpayer](/usc/26/1313.md?p=b) elects the application of this section with respect to any marketable [stock](/usc/26/1504.md?p=a-4) in a corporation after the beginning of the [taxpayer](/usc/26/1313.md?p=b)’s holding period in such [stock](/usc/26/1504.md?p=a-4), and if the requirements of [subparagraph (B)](#j-1-B) are not satisfied, [section 1291](/usc/26/1291.md) shall apply to—
      - (i) any distributions with respect to, or [disposition](/usc/26/424.md?p=c-1) of, such [stock](/usc/26/1504.md?p=a-4) in the first taxable year of the [taxpayer](/usc/26/1313.md?p=b) for which such election is made, and
      - (ii) any amount which, but for [section 1291](/usc/26/1291.md), would have been included in gross income under [subsection (a)](#a) with respect to such [stock](/usc/26/1504.md?p=a-4) for such taxable year in the same manner as if such amount were gain on the [disposition](/usc/26/424.md?p=c-1) of such [stock](/usc/26/1504.md?p=a-4).
    - (B) **Requirements—** The requirements of this subparagraph are met if, with respect to each of such corporation’s taxable years for which such corporation was a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) and which begin after December 31, 1986, and included any portion of the [taxpayer](/usc/26/1313.md?p=b)’s holding period in such [stock](/usc/26/1504.md?p=a-4), such corporation was treated as a qualified electing [fund](/usc/26/851.md?p=g-2) under this part with respect to the [taxpayer](/usc/26/1313.md?p=b).
  - (2) **Special rules for regulated investment companies—**
    - (A) **In general—** If a [regulated investment company](/usc/26/851.md?p=a) elects the application of this section with respect to any marketable [stock](/usc/26/1504.md?p=a-4) in a corporation after the beginning of the [taxpayer](/usc/26/1313.md?p=b)’s holding period in such [stock](/usc/26/1504.md?p=a-4), then, with respect to such [company](/usc/26/812.md?p=a)’s first taxable year for which such [company](/usc/26/812.md?p=a) elects the application of this section with respect to such [stock](/usc/26/1504.md?p=a-4)—
      - (i) [section 1291](/usc/26/1291.md) shall not apply to such [stock](/usc/26/1504.md?p=a-4) with respect to any distribution or [disposition](/usc/26/424.md?p=c-1) during, or amount included in gross income under this section for, such first taxable year, but
      - (ii) such [regulated investment company](/usc/26/851.md?p=a)’s tax under this chapter for such first taxable year shall be increased by the aggregate amount of [interest](/usc/26/856.md?p=f-1) which would have been determined under [section 1291(c)(3)](/usc/26/1291.md?p=c-3) if [section 1291](/usc/26/1291.md) were applied without regard to this subparagraph.

      [Clause (ii)](#j-2-A-ii) shall not apply if for the preceding taxable year the [company](/usc/26/812.md?p=a) elected to mark to market the [stock](/usc/26/1504.md?p=a-4) held by such [company](/usc/26/812.md?p=a) as of the last day of such preceding taxable year.

    - (B) **Disallowance of deduction—** No deduction shall be allowed to any [regulated investment company](/usc/26/851.md?p=a) for the increase in tax under [subparagraph (A)(ii)](#j-2-A-ii).
- (k) **Election—** This section shall apply to marketable [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) which is held by a [United States](/usc/26/993.md?p=g) person only if such person elects to apply this section with respect to such [stock](/usc/26/1504.md?p=a-4). Such an election shall apply to the taxable year for which made and all subsequent taxable years unless—
  - (1) such [stock](/usc/26/1504.md?p=a-4) ceases to be marketable [stock](/usc/26/1504.md?p=a-4), or
  - (2) the Secretary consents to the revocation of such election.
- (l) **Transition rule for individuals becoming subject to United States tax—** If any individual becomes a [United States](/usc/26/993.md?p=g) person in a taxable year beginning after December 31, 1997, solely for purposes of this section, the adjusted basis (before adjustments under [subsection (b)](#b)) of any marketable [stock](/usc/26/1504.md?p=a-4) in a passive foreign [investment company](/usc/26/368.md?p=a-2-F-iii) owned by such individual on the first day of such taxable year shall be treated as being the greater of its fair market [value](/usc/26/851.md?p=c-4) on such first day or its adjusted basis on such first day.

## Source credit

(Added Pub. L. 105–34, title XI, § 1122(a), Aug. 5, 1997, 111 Stat. 972; amended Pub. L. 105–206, title VI, § 6011(c)(3), July 22, 1998, 112 Stat. 818; Pub. L. 107–16, title V, § 542(e)(5)(C), June 7, 2001, 115 Stat. 85; Pub. L. 108–311, title IV, § 408(a)(19), Oct. 4, 2004, 118 Stat. 1192; Pub. L. 111–312, title III, § 301(a), Dec. 17, 2010, 124 Stat. 3300.)

## Notes

### Editorial Notes

### References in Text

Section 11A of the Securities and Exchange Act of 1934, referred to in subsec. (e)(1)(A)(i), is classified to section 78k–1 of Title 15, Commerce and Trade.

### Prior Provisions

A prior section 1296 was renumbered section 1297 of this title.

### Amendments

2010—Subsec. (i). Pub. L. 111–312 amended subsec. (i) to read as if amendment by Pub. L. 107–16, § 542(e)(5)(C), had never been enacted. See 2001 Amendment note below.

2004—Subsec. (h). Pub. L. 108–311 substituted “section 851(b)(2)” for “paragraphs (2) and (3) of section 851(b)”.

2001—Subsec. (i). Pub. L. 107–16, § 542(e)(5)(C), struck out subsec. (i). Text read as follows: “In the case of stock of a passive foreign investment company which is acquired by bequest, devise, or inheritance (or by the decedent’s estate) and with respect to which an election under this section was in effect as of the date of the decedent’s death, notwithstanding section 1014, the basis of such stock in the hands of the person so acquiring it shall be the adjusted basis of such stock in the hands of the decedent immediately before his death (or, if lesser, the basis which would have been determined under section 1014 without regard to this subsection).”

1998—Subsec. (d). Pub. L. 105–206 inserted at end “In the case of a regulated investment company which elected to mark to market the stock held by such company as of the last day of the taxable year preceding such company’s first taxable year for which such company elects the application of this section, the amount referred to in paragraph (1) shall include amounts included in gross income under such mark to market with respect to such stock for prior taxable years.”

### Statutory Notes and Related Subsidiaries

### Effective Date of 2010 Amendment

Amendment by Pub. L. 111–312 applicable to estates of decedents dying, and transfers made after Dec. 31, 2009, except as otherwise provided, see section 301(e) of Pub. L. 111–312, set out as an Effective and Termination Dates of 2010 Amendment note under section 121 of this title.

### Effective Date of 2001 Amendment

Amendment by Pub. L. 107–16 applicable to estates of decedents dying after Dec. 31, 2009, see section 542(f)(1) of Pub. L. 107–16, set out as a note under section 121 of this title.

### Effective Date of 1998 Amendment

Amendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

### Effective Date

Section applicable to taxable years of United States persons beginning after Dec. 31, 1997, and to taxable years of foreign corporations ending with or within such taxable years of United States persons, see section 1124 of Pub. L. 105–34, set out as an Effective Date of 1997 Amendment note under section 532 of this title.