Passive Income–Exceptions

Exceptions from passive income treatment include:

  • Any income from interest, dividends, rents, or royalties that is received or accrued from a related person to the extent such amount is properly allocable to income of such related person that is not passive income. For purposes of this paragraph, the term “related person” has the meaning given such term by section 954(d)(3) determined by substituting “foreign entity” for “controlled foreign corporation” each place it appears in section 954(d)(3); or
  • In the case of a foreign entity that regularly acts as a dealer in property that gives rise to passive income, forward contracts, option contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities)
  • Any item of income or gain (other than any dividends or interest) from any transaction (including hedging transactions and transactions involving physical settlement) entered into in the ordinary course of such dealer’s trade or business as such a dealer; and
  • If such dealer is a dealer in securities (within the meaning of section 475(c) (2)), any income from any transaction entered into in the ordinary course of such trade or business as a dealer in securities