Where do I report PFIC income?
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 is PFIC taxed in US?
The U.S. tax code categorizes non-U.S. registered mutual funds as Passive Foreign Investment Companies (PFICs). PFICs are taxed very punitively by the U.S. Furthermore, each PFIC must be reported annually on U.S. tax form 8621, which requires complex accounting and is very time consuming to complete.
How do I report PFIC?
PFIC reporting is the requirement that US citizens or green card holders, who indirectly or directly own shares in a PFIC at any time during the year, must file Form 8621 with the IRS. As this is an additional and often complex form, you will need to pay your tax advisor additional fees to prepare these.
How are PFIC excess distributions taxed?
Likewise, when a person has a PFIC, and they did not make an election, they are not taxed on the increase in value within the PFIC. Presuming that the distribution exceeds the average of 125% value of the three prior-year distributions, the IRS deems this distribution an excess distribution.
How can I check my PFIC status?
Under the income test, a foreign corporation is a PFIC if 75% or more of its gross income is passive income. Under the asset test, a foreign corporation is a PFIC if 50% or more of the average value of its assets consists of assets that would produce passive income.
What PFIC reporting?
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. In a year where there is no income to report, they do not need to worry about specific tax penalties.
Why is PFIC bad?
PFIC Taxation Making the wrong choice can cost the shareholder a lot more in tax and interest. The taxation options available range from extremely punitive to similar to the tax treatment of US mutual funds, but not every option is available to every person every year.
What is PFIC IRS?
Passive Foreign Investment Company (PFIC) A foreign corporation is a PFIC if it meets either the income or asset test described next. Income test. 75% or more of the corporation’s gross income for its tax year is passive income (as defined in section 1297(b)). Asset test.
How do you tell if a stock 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.
How do I get rid of PFIC?
The only way you can stop the application of the PFIC rules to the stock of a former PFIC is to make a purging election. There are two possible purging elections that a shareholder could make to remove the PFIC treatment: a deemed sale election or a deemed dividend election.
How PFIC is taxed?
Under the QEF election, taxpayers can pay tax on income generated by PFICS under the same rules and tax rates as domestic investments. Part of the income is taxed at the personal income tax rate and part at the capital gains rate. Gain from FPICs gets taxed at the marginal tax rate based on your income level, as well.
How is tax calculated for prior years PFIC?
The taxation for the prior years PFIC period is complicated. For the amount allocated to each calendar year in this period, you apply the maximum tax rate for each year to that year’s portion of the gain, and then you calculate a daily compounded interest charge.
When to file Form 8621 for a PFIC?
About Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. 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.
What makes a PFIC a passive foreign investment company?
PFICs are foreign corporations that generate 75% or more of their gross income from passive sources or that own assets that are primarily held for the production of passive income (i.e., more than 50% of the entity’s asset value is represented by assets that generate passive income) (Sec. 1297 (a)).
When do you pay interest on PFIC excess distributions?
All gains realized upon the disposition of PFIC shares are also considered excess distributions (Sec. 1291 (a) (2)). Interest charges will be assessed on taxes deemed owed on excess distributions allocated to tax years prior to the tax year in which the excess distribution was received.