Section 1291 (PFIC excess-distribution regime)

IRC §1291 is what happens to a PFIC by default — it is not elected, it applies unless a QEF or mark-to-market election displaces it. It bites on two events: an excess distribution (a distribution more than 125% of the average of the prior three years) and any gain on disposition, which is treated wholly as an excess distribution regardless of holding period. The amount is allocated rateably across every day you held the shares. The portion allocated to the current year is ordinary income; the portion allocated to each prior year is taxed at the highest ordinary rate in effect for that year — not your rate — and then carries an interest charge under §1291(c)(3) computed at the §6621 underpayment rate from that year forward. Because the interest compounds over the holding period, a long-held fund can generate a liability approaching or exceeding the gain itself. No capital-gains rate, no qualified-dividend rate, and losses do not offset.