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By Edward Parsons, CPA · licensed since 2009
Key takeaways
- Expat tax software is built around the return most Americans abroad have: salary, the foreign earned income exclusion, sometimes the foreign tax credit. A local fund is where that return stops being simple.
- As of this writing, the most recent version of Expatfile’s supported-forms list I could read, for the current filing season, doesn’t include Form 8621, and that page says it can’t support forms that aren’t on the list.
- MyExpatTaxes lists Form 8621, but its help article says its tax team prepares the form, calls it a form that needs a tax professional, and asks for your full transaction history.
- H&R Block’s expat do-it-yourself product sells Form 8621 as an add-on, while H&R Block’s own article advises against filling out the form yourself.
- The foreign earned income exclusion doesn’t cover fund income. A return that shows zero tax because of the exclusion can still owe tax and interest on a PFIC.
- Whatever program you use, the Part V figures have to be computed from your history with the fund. The PFIC Calculator & Form 8621 Generator does that, in the fund’s currency, block by block.
Living abroad changes which funds you can buy. The bank down the street, the adviser your colleagues use, the savings plan your employer offers: almost all of it is local, and almost all of it is foreign from the US point of view. That is why so many PFIC questions come from Americans abroad, and why so many of them start with a program that handled everything else on the return.
This guide covers what the main expat tax programs say about Form 8621 on their own pages, why the exclusion they are built around doesn’t help with a fund, and what the fund side of the return actually needs.
Do expat tax programs prepare Form 8621?
Mostly, they hand it to a person. Here is what each says on its own pages.
| Program | What its own pages say about Form 8621 |
|---|---|
| Expatfile | The most recent version of its supported-forms list I could read, for the current filing season, doesn’t include Form 8621. That page says that if your form isn’t listed, Expatfile can’t support you for now. |
| MyExpatTaxes | Lists Form 8621 among its forms, with an extra charge. Its help article says its tax team prepares Form 8621 for each PFIC, needs your full transaction history to do it, and refers you to a PFIC partner if you can’t provide it. |
| H&R Block Expat (do-it-yourself) | Lists Form 8621 as an additional form with its own fee. H&R Block’s own article on Form 8621 says it doesn’t recommend filling out the form on your own. |
| Expat Tax Online (self-prep) | Its list of who can’t use its self-prep software includes people with dividends, capital gains or foreign tax credits. That covers almost every fund holder. |
Two general-market programs are worth noting too. FreeTaxUSA lists customers living outside the United States among the situations it doesn’t support. TurboTax doesn’t include Form 8621 for anyone. My guides to FreeTaxUSA and Form 8621 and what to do when TurboTax doesn’t do Form 8621 cover those, and H&R Block and Form 8621 covers H&R Block’s other products. For every program side by side, see which tax software supports Form 8621.
The pattern is the point. The companies that know the expat return best either leave Form 8621 out or route it to a professional. MyExpatTaxes’ condition is the most telling: it needs your full transaction history. That history is the hard part, and no program can supply it for you.
Why doesn’t the foreign earned income exclusion cover my fund?
Because a fund doesn’t pay you for work.
The foreign earned income exclusion is often the reason an American abroad owes no US tax, and expat software is built around it. But section 911 defines earned income as wages, salaries, professional fees and other pay for personal services you actually performed. A fund’s distributions are not that, and neither is a gain when you sell.
So a return can exclude every dollar of your salary and still owe tax on your fund. Under the default rules of section 1291, that tax arrives with an interest charge attached, and the exclusion doesn’t touch either. A return that shows zero tax because of the exclusion can be missing the one part that isn’t zero.
Why are PFICs the ordinary case abroad?
Because a local fund is a foreign fund from the US point of view.
When you live abroad, the funds on offer are local: your bank’s savings plan, the fund your adviser recommends, the ETF on your country’s exchange. To the IRS, most of those are PFICs. My guides to whether a foreign mutual fund is a PFIC and whether foreign ETFs are PFICs explain why.
Three things make them harder to report than a US fund:
- No 1099. A foreign bank doesn’t send one, so nothing arrives that a program could read.
- Statements in another currency. Distributions, purchases and sales each have to be translated on their own dates. The current Form 8621 instructions also add a currency code to Part V and ask for one of its figures in US dollars.
- Savings plans. A monthly plan buys shares every month, and each purchase is its own block of shares with its own holding period. The instructions call for a separate Part V for each block.
Will the same fund show up on other forms?
Often, yes. A fund held at a foreign bank can belong on the FBAR, on Form 8938 and on Form 8621, and each has its own threshold and its own rules about what goes where. My guides to what goes on the FBAR for foreign funds and how the FBAR, Form 8938 and Form 8621 differ walk through the overlap.
What about pensions, insurance wrappers and funds inside funds?
That is where it stops being a software question.
The Form 8621 instructions treat you as an indirect shareholder in some cases: for example, when a PFIC you own holds another PFIC, or when you own a pass-through entity that holds one. Whether a local pension or a wrapped investment plan puts you in that position depends on how it is set up, and on the country. My guides to PFICs inside Australian superannuation and Colombian investment funds show how much one country’s rules can change the answer.
What should I do?
- List every fund you hold abroad, including the ones inside savings plans and wrappers, and check each one: is it a PFIC? The free PFIC Analyzer tests a fund against the income and asset tests.
- Gather the full transaction history for each fund: every purchase, distribution and sale, with dates, in the fund’s currency. This is the step every program depends on.
- 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, handles the currency translation, and fills in the official Form 8621 for each fund and year, with workpapers behind every figure.
- Then bring it to the rest of your return, whichever expat program prepares it. If you have years abroad you never reported, my guide to catching up on unfiled Form 8621 explains why the order matters.
Glossary
- Foreign earned income exclusion: the election, under section 911, to exclude foreign wages and other pay for work from US income. It doesn’t cover investment income.
- PFIC: a passive foreign investment company, including most foreign mutual funds and ETFs. See what a PFIC is.
- Block of shares: shares bought on the same date, with one holding period. Each block gets its own Part V entries.
- Indirect shareholder: someone treated as owning a PFIC through another entity, such as a fund that holds another fund.
- Transaction history: every purchase, distribution and sale of a fund, with dates and amounts. The input every PFIC calculation needs.
Frequently asked questions
Does Expatfile support Form 8621?
As of this writing, the most recent version of Expatfile’s supported-forms list I could read, for the current filing season, doesn’t include Form 8621, and that page says that if your form isn’t listed, Expatfile can’t support you for now. Check its current list before you rely on it.
Does MyExpatTaxes do Form 8621?
MyExpatTaxes lists Form 8621, with an extra charge, but its help article says its tax team prepares the form rather than the software, and that it needs your full transaction history. Without that history, it says it refers you to a PFIC partner.
Does H&R Block Expat do Form 8621?
H&R Block’s expat do-it-yourself product lists Form 8621 as an additional form with its own fee. H&R Block’s own article on Form 8621 says it doesn’t recommend filling out the form on your own.
Does the foreign earned income exclusion cover my foreign mutual fund?
No. Section 911 defines earned income as wages, salaries, professional fees and other pay for personal services. A fund’s distributions and gains aren’t earned income, so the exclusion doesn’t reduce the tax or interest on a PFIC.
Why are so many funds abroad PFICs?
A fund set up outside the US is a foreign corporation from the US point of view, and most foreign mutual funds and ETFs meet the PFIC income or asset test. For an American abroad, the ordinary local fund is usually a PFIC.
What do I need before any program can do Form 8621?
The full transaction history for each fund: every purchase, distribution and sale, with dates, in the fund’s currency. Then a tool built for the section 1291 calculation, such as the PFIC Calculator & Form 8621 Generator, can compute Part V and fill in the form.
Start with the history, not the software. List your funds, test them with the free PFIC Analyzer, and let the PFIC Calculator turn the transaction history into Part V.
Expatfile, MyExpatTaxes, H&R Block, Expat Tax Online, FreeTaxUSA and TurboTax are trademarks of their respective owners. This guide is not affiliated with or endorsed by any of them. Product features are described from the makers’ own pages as of this writing and can change.