Passive Income

Passive income means the portion of gross income that consists of:

Dividends including substitute dividend amounts; Interest;

Income equivalent to interest, including substitute interest and amounts received from or with respect to a pool of insurance contracts if the amounts received depend in whole or part upon the performance of the pool;Rents and royalties, other than rents and royalties derived in the active conduct of a trade or business conducted, at least in part, by employees of the NFFE; i Annuities;The excess of gains over losses from the sale or exchange of property that gives rise to passive income described in points (1) through (5) above;

The excess of gains over losses from transactions (including futures, forwards, and similar transactions) in any commodities, but not including:

  • any commodity hedging transaction described in section 954(c)(5)(A), determined by treating the corporation or partnership as a controlled foreign corporation; or
  • Active business gains or losses from the sale of commodities, but only if substantially all the foreign entity’s commodities are property described in paragraph (1), (2), or (8) of section 1 221 (a);

The excess of foreign currency gains over foreign currency losses (as defined in section 988(b)) attributable to any section 988 transaction;

Net income from notional principal contracts as defined in §1.446-3(c)(1)

i Amounts received under cash value insurance contracts; or

ii Amounts earned by an insurance company in connection with its reserves for insurance and annuity contracts.