Part I: PFIC Minutiae – Why the Devil is in the Details

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Previous posts have briefly discussed passive foreign investment companies (PFICs”).  See,  – “PFICs” – What is a PFIC – and their PFIC Form 8621Complications for USCs and LPRs Living Outside the U.S. (28 March 2014)

and

 The Problem with PFICs! “Avoid PFICs Like the Plague”  (30 March 2015).

This discussion will be the first part of a series of key points that will delve into some of the important details.

To begin with, it is important to note the following “new” requirements, if you have an investment that falls into the category of a “PFIC.”

 

  • The regulations require the “. . . United States person must file a separate IRS Form 8621 for each PFIC . . .” investment.  See, Treas. Reg. §1.1298–1T(e) –(e) Separate annual report for each PFIC—(1) General rule. If a United States person is required under section 1298(f) and these regulations to file Form 8621 (or successor form) with respect to more than one PFIC, the United States person must file a separate Form 8621 (or successor form) for each PFIC.

** This means that if the individual has a portfolio of 14 different mutual funds that are PFICs, the taxpayer has to prepare 14 different IRS Forms 8621.

Various financial institutions are just now starting to advise their clients who are U.S. citizens (commonly residing outside the U.S.) of these complex reporting rules.  See for instance, Fidelity’s website; Passive Foreign Investment Company, Fidelity is helping investors comply with U.S. PFIC tax rules

Fidelity knows there is concern among investors about the U.S. Passive Foreign Investment Company (PFIC) rules. These rules could significantly affect “U.S. persons” who hold Canadian mutual funds, so we are providing you with information about these complex rules. . .

 

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