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   Qualified investments at December 31, 1975.................      $16,000Qualified investments at December 31, 1976.................       17,000Qualified investments at December 31, 1977.................       23,000Qualified investments at December 31, 1978.................       28,000Qualified investments at December 31, 1979.................       30,000 
  (b) Assume that M properly files without consent a timely election under §1.955A–4(b)(1) to determine X's increase for 1976 in qualified investments in foreign base company shipping operations pursuant to this paragraph, and that the election remains in force through 1978. Then X's increases for 1976 through 1978 in qualified investments in foreign base company shipping operations are as follows:
   Increase for 1976 ($23,000 minus $16,000).....................    $7,000Increase for 1977 ($28,000 minus $23,000).....................     5,000Increase for 1978 ($30,000 minus $28,000).....................     2,000 

Example 2.  Assume the same facts as in example 1, except that M never files an election under §1.955A–4(b)(1). X's increases for 1976 through 1978 in qualified investments in foreign base company shipping operations are as follows:

   Increase for 1976 ($17,000 minus $16,000).....................    $1,000Increase for 1977 ($23,000 minus $17,000).....................     6,000Increase for 1978 ($28,000 minus $23,000).....................     5,000 

Example 3.  The facts are the same as in example 1, except that X's qualified investments in foreign base company shipping operations include an investment in less developed country shipping companies described in §1.955–5(b) of $500 on December 31, 1975, and $750 on December 31, 1976. Assume further that M has made an election under section 955(b)(3) (as in effect before the enactment of the Tax Reduction Act of 1975) with respect to X's taxable year 1975. Then X's increase in qualified investments in foreign base company shipping operations for 1976 is $6,750 (i.e., $7,000−$250).

(c) Illustration. The application of this section may be illustrated by the following example:

Example.  (a) Controlled foreign corporation X uses the calendar year as the taxable year. On December 31, 1975, X's qualified investments in foreign base company shipping operations (determined as provided in §1.955A–2(g)) consist of the following amounts:

   Cash.........................................................     $6,000Readily marketable securities................................      1,000Stock of related controlled foreign corporations.............      4,000Traffic and other receivables................................     14,000Marine insurance claims receivables..........................      1,000Foreign income tax refunds receivable........................      1,000Prepaid shipping expenses and shipping inventories ashore....      1,000Vessel construction funds....................................          0Vessels......................................................    123,000Vessel plans and construction in progress....................      3,000Containers and chassis.......................................          0Terminal property and equipment..............................      2,000Shipping office (land and building)..........................      1,000Vessel spare parts ashore....................................      1,000Performance deposits.........................................      2,000Deferred charges.............................................      2,000Stock of less developed country shipping company described in     10,000 § 1-955-5(b)...........................................                                                              ----------                                                                 172,000                                                              ========== 
  (b) On December 31, 1976, X's qualified investments in foreign base company shipping operations (determined as provided in §1.955A–2(g)) consists of the following amounts:
   Cash.........................................................     $5,000Readily marketable securities................................      2,000Stock of related controlled foreign corporations.............      4,000Traffic and other receivables................................     16,000Foreign income tax refunds receivable........................      3,000Prepaid shipping expenses and shipping inventories ashore....      2,000Vessel construction funds....................................      1,000Vessels......................................................    117,000Vessel plans and construction in progress....................     12,000Containers and chassis.......................................      4,000Terminal property and equipment..............................      2,000Shipping office (land and building)..........................      1,000Vessel spare parts ashore....................................      1,000Performance deposits.........................................      2,000Deferred charges.............................................      2,000Stock of less developed country shipping company described in          0 § 1.955-5(b)...........................................                                                              ----------                                                                 174,000                                                              ========== 
  (c) For 1976, X's increase in qualified investments in foreign base company shipping operations is $2,000, which amount is determined as follows:
   Qualified investments at Dec. 31, 1976.......................   $174,000Qualified investments at Dec. 31, 1975.......................    172,000                                                              ----------    Increase for 1976........................................      2,000 

[T.D. 7894, 48 FR 22528, May 19, 1983]

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