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This document contains proposed regulations regarding the treatment of certain income or gain received or accrued by a foreign corporation in a taxable year for purposes of determining whether such foreign corporation is a Passive Foreign Investment Company (PFIC) in such taxable year. Regulations under section 1297(c) provide rules for classifying gains recognized by a foreign corporation from the sale or exchange of stock of a 25 percent-owned (by value) foreign subsidiary corporation for purposes of the passive income test of section 1297(a)(1). Regulations under section 1298(b)(3) apply the change-of-business exception provided by section 1298(b)(3) to a foreign corporation's sale or exchange of all or a portion of the stock of a 25 percent-owned (by value) corporation described in section 1297(c). The regulations affect certain foreign corporations and United States persons who own (directly or indirectly) stock interests in such foreign corporations.