Form 8621 Calculator Dramatically Reduces Preparation Time For Tax Professionals!
As the Internal Revenue Service (IRS) steps up efforts to find delinquent taxpayers around the world, U.S. expats are being forced to complete more and more forms to comply with the U.S. tax obligations. The introduction of the Foreign Account Tax Compliance Act (FATCA) has provided even more strength to the IRS’s efforts. Not only are U.S. expats required to file the appropriate Report of Foreign Bank and Financial Accounts (FBAR) forms to report their assets but certain international fund holdings trigger Form 8621 filing requirements. If an investment account holds mutual funds or exchange traded funds (ETFs) outside the United States, the IRS considers most of them to be Passive Foreign Investment Companies (PFICs) which means additional reporting of income and distributions.
A PFIC only needs one of two attributes:
At least 75 per cent of the corporation’s income is considered “passive”, which is based on investments rather than standard operating business.
At least 50 per cent of the company’s assets produce passive income such as: interest, dividends and/or capital gains.
This means foreign-based mutual funds and other pooled investments that have at least one U.S. shareholder are considered PFICs. Generally PFIC investors are required to pay income tax on all distributions annually and capital gains tax rates are not applicable unless a QEF election has been made.
PFICs are subject to taxation under the most complex set of rules found in the U.S. tax code, IRC 1291-1298. The regulations include several elections or no election at all. In addition to the elections the calculations can also include phantom income, deducting unrealized losses but only to the extent of previously taxed unrealized gains including actual income, disregarding losses, deemed sales, deemed dividends and a throwback tax which allocates gains per day and taxing the investor at the highest tax rates for each year plus interest.
Most of the calculations for Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund occur before any entries are made on the form. The IRS estimates that it will take a trained professional an average of 24 hours to complete the calculations and form. It is so time consuming that some international investment advisors actually recommend U.S. citizens not hold any outside mutual funds since the cost to prepare the U.S. forms outweigh any gains. The necessary computation is so complex that none of the large commercial tax software programs currently perform the multi-level, convoluted math needed to complete the form.
Tax professionals and accountants specializing in U.S. expat returns can now get relief from Form 8621 Calculator. Designed by U.S. tax professionals to handle the complex reporting of non-U.S. mutual funds and ETFs, the software makes Form 8621 into a data entry exercise and can reduce the preparation time to under an hour. The data entry is so simple that it can be completed by junior accountants. In addition to computing all the numbers needed for Form 8621, the calculator also provides a forms guide to show where the numbers are reported on the tax return.
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About the author… Mary Beth Lougen is President of American Expat Tax Services and an Enrolled Agent with over 30 years of US Income Tax experience, working both in the United States and in Canada. Being a dual Canadian/ US citizen who has lived on both sides of the border and personally dealt with the rigors of tax filing as an American Expat, Mary Beth is in tune with the challenges and concerns faced by all her clients. After seeing too many people with significant tax issues caused by a lack of knowledge in the field of cross border taxation, Beth opened American Expat Tax Services to make quality expat tax preparation available to everyone. She is also a respected writer and teacher in cross border taxation.
