Income Test

75% or more of the foreign corporation’s gross income for a particular taxable year is treated as passive

Asset Test

52% or more of the average value of a foreign corporation’s assets either produce or is held for the production of “passive income”

Passive income generally includes

• Personal service contract income (generally single owner employee providing expertise)
• Excess of gains over losses from transactions in any commodities
• Excess of foreign currency gains over foreign currency losses
• Excess of gains over losses from the sale/exchange of property
• Interest income and amounts equivalent to interest