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Archive for Passive Foreign Investment Corporation

U.S. Shareholders Of A Passive Foreign Investment Company

OLIVIER WAGNER - US Expats With Passive Foreign Investment Company

The IRS found the way to congratulate U.S.expats who are shareholders of a Passive Foreign Investment Company(PFIC) by adding one additional form you need to file. Together with your tax return, you need to file Form 8621.

This applies for each separate PFIC you are a shareholder if you:

-Receive direct or indirect distributions from a PFIC.
-Recognize a gain on a direct or indirect disposition of PFIC stock.
-Report information with respect to a QEF or section 1296 mark-to-market election.
-Make an election reportable in Part II of the form.
-File an annual report pursuant to section 1298(f).

Who must file Form 8621?
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Passive Foreign Investment Corporation “PFIC” And Form 8621

Olivier Wagner - PFIC

US citizens living overseas naturally invest in foreign investment vehicles as that’s where they live. With it may come some bad surprise, a punitive taxation regime that can sidetrack you if not planned. Anyone who has made investment outside the USA or is considering making an investment in foreign companies, it is important for him/her to understand associated tax obligations. This blog post covers a summary of US tax rules related to passive foreign investment companies or PFIC. The PFIC rules apply to US persons i.e. individuals, corporations, estates and trusts who are US residents or US citizens.

So, what is a PFIC and why should you care about it?
Congress dislikes the idea that taxpayers would be able to defer income, especially when it comes to foreign investment vehicles. As such, it created a very punitive excess distribution regime, taxing income at the maximum tax rate and adding interest to it.

A relief was that it allowed US persons to treat income earned through PFICs in the same way as the income through US mutual funds is treated, which would be a QEF election. Or alternatively on a mark-to-market basis, which would be a mark-to-market election.
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