A taxpayer with shares in a passive foreign investment company (a “PFIC”) may qualify to make either a qualified electing fund (“QEF”) election or an election to apply mark-to-market treatment with respect to marketable stock. All things equal, taxpayers will typically prefer QEF treatment. The code, however, requires that the taxpayer meet certain criteria before they can make a valid QEF election. If a taxpayer makes a mark-to-market election, the Code generally provides that the MTM election remains in place until the foreign company ceases to be a PFIC or the IRS consents to the revocation of the MTM election in light of a “substantial change in circumstances.”
Sometimes, the information necessary to make a QEF election is not available at the time that the taxpayer files their tax return. Indeed, investments in PFICs can present notorious challenges in terms of obtaining the necessary documentation to support a QEF election.
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