Do I need to report PFIC?

In general, a shareholder of a PFIC must file a four-page annual report with the IRS unless an exception applies. That annual report is Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund).

How do I report a PFIC?

Form 8621 & Reporting the PFIC The form 8621 is the form used to report both the tax in the ownership of a PFIC. There are some exceptions, exclusions, and limitations, but generally unless you are below the threshold value you have to report the form each year.

How do you know if a fund is a PFIC?

You can generally tell if a foreign corporation or foreign investment fund is considered a passive foreign investment company (PFIC) if it meets one of the following two characteristics: 75% or more of its gross income for the taxable year is passive income, or.

Is my company a PFIC?

A foreign corporation is treated as a PFIC, if either the 50 percent asset test or the 75 percent income test is satisfied. Or if 75 percent or more of its gross income fits within the definition of ‘passive income’, which generally includes dividends, interest, royalties, rents, and annuities.

How is a PFIC taxed?

A shareholder of a PFIC is by default subject to the Sec. All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec. 1291(a)(1)(B)).

Who needs to file PFIC?

A U.S. person that is a direct or indirect shareholder of a passive foreign investment company (PFIC) files Form 8621 if they: Receive certain direct or indirect distributions from a PFIC. Recognize a gain on a direct or indirect disposition of PFIC stock.

How do I report PFIC income?

PFICs and Tax Strategies U.S. investors who own shares of a PFIC must file IRS Form 8621. This form is used to report actual distributions and gains, along with income and increases in QEF elections. The tax form 8621 is a lengthy, complicated form that the IRS itself estimates may take more than 40 hours to fill out.

How is PFIC taxed?

All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec. 1291(a)(1)(B)).

What qualifies as PFIC?

A foreign corporation is a deemed passive foreign investment company (PFIC) if 75% or more of its gross income is from non-business operational activities (the income test), or at least 50% of its average percentage of assets is held for the production of passive income (the asset test).

What are the PFIC rules?

The PFIC rules were originally designed to prevent US persons from deferring tax on passive income earned through non-US companies. The IRS didn’t want people to convert this income into capital gains taxed at better rates. The Foreign Account Tax Compliance Act (FATCA) came into effect in 2010.

How are PFIC taxed?

The PFIC regime is a penalty provision that taxes gains and distributions at the highest tax rate plus an interest charge on the deferral period. An example would be if the taxpayer is invested in a fund and the fund owns a PFIC, the taxpayer would be subject to the PFIC rules.

Who is subject to PFIC rules?

A foreign corporation (the tested foreign corporation) is a PFIC if, for its tax year: (1) at least 75% of its gross income is passive income (Income Test); or (2) the average percentage of assets that are held during the tax year and produce, or are held to produce, passive income (Asset Test and, collectively, the …

What kind of tax year does PFIC report on?

PFIC Annual Information Statements contain information that enables you to elect to treat a fund as a Qualified Electing Fund (QEF) on IRS Form 8621. The statements reflect information for each fund’s U.S. tax year ended June 30, 2018, June 30, 2017, June 30, 2016, June 30, 2015 or June 30, 2014.

Do you recognize a gain from a PFIC?

Receive certain direct or indirect distributions from a PFIC. Recognize a gain on a direct or indirect disposition of PFIC stock. Are reporting information with respect to a QEF or section 1296 mark-to-market election.

Do you have to report PFIC in Puerto Rico?

As a result, residents of Puerto Rico and American Samoa may still be subject to PFIC reporting, even if they are not required to file US income tax returns.

What are the final regulations for a PFIC?

The Treasury and IRS recently released final regulations that provide guidance on determining the ownership of a PFIC and on certain reporting obligations of PFIC shareholders. The final regulations finalize, with some modifications, proposed regulations and withdraw temporary regulations issued in 2013.

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