Cash App Taxes and Form 8621: Why “Small” Doesn’t Mean Simple

By Edward Parsons, CPA · licensed since 2009

Key takeaways

• Cash App Taxes’ help pages don’t mention Form 8621 at all. They do list the foreign tax credit form, Form 1116, and the foreign earned income exclusion among the forms and situations it doesn’t support, and an older help page says it doesn’t support reporting foreign accounts.
• A small foreign fund can still need Form 8621. The $25,000 exception people rely on counts every PFIC you own together, not fund by fund.
• The exception also doesn’t apply in a year you receive an excess distribution or sell shares at a gain, which are the years with tax to compute.
• Under the default section 1291 rules, a small holding goes through the same calculation as a large one: block by block, day by day, with interest.
• Check the fund, check the exception, and if you need the form, compute Part V with a tool built for it, such as the PFIC Calculator & Form 8621 Generator.

Free tax software is built for straightforward returns, and most of the people who use it have exactly that. The trouble starts with one small investment that turns out to be foreign: a fund bought through an app, a few shares of a foreign ETF, an account left over from time abroad. The amount is small, so the return still feels simple.

The tax rules don’t scale with the amount. This guide covers what Cash App Taxes’ own pages say, and why a small PFIC is the case most likely to slip through.

Does Cash App Taxes support Form 8621?

Its help pages don’t mention it.

Cash App Taxes publishes a list of the forms and situations it doesn’t support. Form 8621 isn’t named on it, and a search of its help center for Form 8621 returns nothing. What the list does name is close by:

• Form 1116, the foreign tax credit form;
• Form 2555, the foreign earned income exclusion;
• foreign earned income as a situation.

An older Cash App Taxes help page also says it doesn’t currently support reporting foreign accounts, interest, deductions or credits. Its list of supported forms doesn’t include Form 8621 either.

So nothing in Cash App Taxes’ own pages suggests it can produce a Form 8621. If your return needs one, plan on getting it some other way. My guide to what to do when TurboTax doesn’t do Form 8621 explains why consumer software in general leaves the form out, and which tax software supports Form 8621 sets every program side by side.

My fund is small. Do I still need Form 8621?

Possibly. The $25,000 exception is narrower than it sounds.

The Form 8621 instructions relieve a shareholder of the Part I report for a fund taxed under section 1291 when the shareholder’s PFIC stock is worth $25,000 or less at the end of the year ($50,000 on a joint return). Two conditions make it narrower than the headline:

• It counts all your PFICs together. The threshold is tested on all PFIC stock you own, directly or indirectly, with limited exceptions, not on each fund. Three small funds can add up past it.
• It doesn’t cover the years with tax in them. The exception applies only if you didn’t receive an excess distribution from the fund and didn’t recognize a gain on selling its shares that year. Sell some shares at a gain, and the exception is gone for that fund that year, however small the holding.

My guide to the $25,000 and $50,000 exception goes further into how it works, and who must file Form 8621 covers the other reasons a form is due.

Is the calculation simpler for a small holding?

No. The amount changes the size of the result, not the work.

Under the default rules of section 1291, a small fund goes through the same steps as a large one:

• each purchase is a block of shares with its own holding period, and small regular purchases make many blocks;
• each block’s distributions are tested against 125% of what it received in the three prior years;
• an excess, or a gain on sale, is spread across every day you held the shares;
• each prior year’s share is taxed at that year’s top rate, and interest is charged under section 6621, compounded daily at a rate that changes every quarter.

A small holding bought a little at a time can actually mean more blocks than a large one bought once.

Do the dividends count as qualified dividends?

Not if the fund is a PFIC. Section 1(h)(11) excludes a foreign corporation that was a PFIC in the year it paid the dividend or the year before. So if your 1099 reports the fund’s dividends as qualified, that label doesn’t fit, whatever program you use.

What should I do?

1. Find out whether the fund is a PFIC. See whether your foreign mutual fund is a PFIC or whether foreign ETFs are PFICs, and test it with the free PFIC Analyzer.
2. Add up all your PFICs at year end, and check whether you had an excess distribution or sold at a gain. That tells you whether the exception can apply.
3. If you need the form, compute Part V. The PFIC Calculator & Form 8621 Generator runs the PFIC tests, the 125% test for each block, the allocation, the rates and the interest, and fills in the official Form 8621 for each fund and year.
4. Then decide what software the rest of the return goes in. A return with a Form 8621 isn’t the simple return free software is designed for.

Glossary

• $25,000 exception: relief from the Part I report on Form 8621 when all your PFIC stock is worth $25,000 or less at year end ($50,000 joint), in a year with no excess distribution and no gain on sale from that fund.
• Excess distribution: the part of a year’s distributions above 125% of the average for the three prior years. A gain on sale is treated as one.
• Block of shares: shares bought on the same date, with one holding period.
• Qualified dividend: a dividend taxed at the lower capital gain rates. A PFIC’s dividends don’t qualify.
• PFIC: a passive foreign investment company, including most foreign mutual funds and ETFs. See what a PFIC is.

Frequently asked questions

Does Cash App Taxes support Form 8621?

Cash App Taxes’ help pages don’t mention Form 8621, and its list of supported forms doesn’t include it. Its unsupported list names the foreign tax credit form and the foreign earned income exclusion, and an older help page says it doesn’t support reporting foreign accounts.

Do I need Form 8621 for a small foreign fund?

Possibly. The $25,000 exception ($50,000 joint) counts all your PFIC stock together, and it doesn’t apply in a year you receive an excess distribution from the fund or sell its shares at a gain.

Is the $25,000 limit per fund?

No. The Form 8621 instructions test the threshold on all PFIC stock you own, directly or indirectly, with limited exceptions. Several small funds can add up past it.

Is the PFIC calculation easier for a small investment?

No. A small holding goes through the same section 1291 steps as a large one, and small regular purchases create many blocks of shares, each with its own holding period.

Where do I get the Form 8621 figures?

From a tool built for the section 1291 calculation. The PFIC Calculator & Form 8621 Generator computes Part V block by block and fills in the official Form 8621 for each fund and year.

Check the exception before you assume it. Test the fund with the free PFIC Analyzer, and if a form is due, let the PFIC Calculator work out Part V.

Cash App Taxes and TurboTax are trademarks of their respective owners. This guide is not affiliated with or endorsed by either. Product features are described from the makers’ own help pages as of this writing and can change.