PFIC & Foreign Investments

Under IRC Section 1298(b)(1), the “once a PFIC, always a PFIC” rule, if a foreign corporation is a passive foreign investment company for even one year during the time you hold it, your stock is treated as PFIC stock for the rest of your holding period, even if the company later stops being a PFIC.

By Edward Parsons, CPA  |  Ed Parsons CPA, Doral, Florida  |  Representing taxpayers nationwide  | Never filed Form 8621 for a PFIC you own? There is no fixed dollar penalty for the missing form itself, but the real risk is larger: an unfiled Form 8621 can keep your entire tax return open to IRS review

By Edward Parsons, CPA  |  Ed Parsons CPA, Doral, Florida  |  Representing taxpayers nationwide  | A PFIC can be taxed three ways. The default Section 1291 regime is the harsh fallback. A QEF election usually gives the best result, taxing you each year on the fund’s earnings while preserving capital gain character, but it needs

By Edward Parsons, CPA  |  Ed Parsons CPA, Doral, Florida  |  Representing taxpayers nationwide  The excess distribution regime under Section 1291 is the default way the IRS taxes a PFIC, and it is harsh by design. Large distributions, and any gain on a sale, are spread back across your entire holding period, taxed at the

Do you have to file Form 8621? Not always. The de minimis exception lets you skip the yearly PFIC report if the total value of all your PFIC holdings is $25,000 or less ($50,000 married filing jointly) at year-end, you have no QEF or mark-to-market election, and you did not receive a distribution or sell

By Edward Parsons, CPA  |  Ed Parsons CPA, Doral, Florida  |  Representing taxpayers nationwide  |  If you moved to the U.S. and brought foreign mutual funds, ETFs, or other pooled investments, those funds are almost certainly PFICs now. Becoming a U.S. resident, by green card or by time spent in the country, makes you subject

Are foreign ETFs PFICs? Almost always, yes. An ETF organized outside the United States, including the Irish-domiciled UCITS ETFs common in Europe, is treated as a PFIC for U.S. taxpayers, even when it holds U.S. stocks. What matters is where the fund is domiciled, not what it invests in. A U.S.-domiciled ETF is generally not

A CFC and a PFIC are two separate sets of U.S. tax rules for foreign corporations. A CFC is about control: a foreign company more than 50% owned by U.S. shareholders who each hold at least 10%. A PFIC is about passivity: a foreign company that earns mostly passive income or holds mostly passive assets,

By Edward Parsons, CPA  |  Ed Parsons CPA, Doral, Florida  |  Representing taxpayers nationwide  | Is your foreign mutual fund a PFIC? Almost certainly yes. Nearly every mutual fund organized outside the United States meets the IRS definition of a Passive Foreign Investment Company, because these funds hold mostly passive assets and earn mostly passive