You’ve learned that a foreign mutual fund, ETF or similar holding may be a Passive Foreign Investment Company (PFIC). Now, you need to know what that means for your taxes and who should make the election decision on your behalf. Many PFIC owners don’t realize they hold one until a broker statement, an accountant or an IRS notice flags it, and the default tax treatment is punitive.
Silver Tax Group is a tax law firm that offers PFIC foreign investment taxation services to properly identify, manage and report PFIC investments. Our attorneys who are admitted to the U.S. Tax Court can help with the filing process and work to reduce your risk of severe IRS penalties.
We Determine If Your Foreign Holding Is a PFIC
Not every foreign investment is a PFIC, and not every PFIC is obvious. We test your holding directly against the IRS standard. The two tests we apply:
- Income test: Passive sources like interest, dividends or capital gains make up 75% or more of the foreign corporation’s income.
- Asset test: At least half of the corporation’s average assets generate passive income or are held to generate passive income.
Only one test needs to be met, so a holding that meets either test is a PFIC.
Common PFICs We See
Identification is often a complex part of PFIC compliance, so we help review your full holdings, not just the ones you already suspect.
- Foreign mutual funds and unit trusts
- Foreign holding companies with mostly investment assets
- Foreign ETFs held directly and not through a U.S. brokerage
We Help You Choose Between QEF and Mark-to-Market
If you hold a PFIC, you may have election options that can help avoid the “excess distribution” tax treatment, depending on the holding and available documentation. Choosing wrong or missing the election window entirely can lock you into a less favorable tax outcome for years. We offer PFIC planning to help evaluate both options against your specific holdings before you decide.
Qualified Electing Fund (QEF) Election
A QEF election means you report your portion of the fund’s income each year. That income is taxed under the usual ordinary income or capital gains rules. To use this option, the fund must provide certain annual information, which not all foreign funds will supply. Once you make a QEF election, you generally need IRS consent to revoke it.
Mark-to-Market Election
With a mark-to-market election, you report gains or losses based on the stock’s fair market value at the end of the year. These gains are typically taxed as ordinary income. This option is only available for regularly traded “marketable stock,” and you must make the election by the tax return deadline for that year.
We Handle Your Form 8621 Filing
You need to file a separate Form 8621 for every PFIC you own. It’s essential to understand the PFIC reporting requirements so you can address the required filings year to year. Our attorneys track filings across multiple holdings and keep the form updated if there are changes, like selling off part or all of your holdings.
Form 8621 is required in several specific situations. We help with PFIC compliance by determining which requirements apply to you. Applicable requirements depend on whether you:
- Received money or another distribution from a PFIC.
- Sold, transferred or disposed of PFIC stock and recognized a gain.
- Need to report income under an existing QEF or mark-to-market election.
- Are making a new PFIC election for the current tax year.
How We Defend You If the IRS Flags a PFIC Penalty
If the IRS questions a missed election, a late Form 8621 or your PFIC tax treatment, we respond before the issue compounds. Our experienced attorneys offer international tax services that:
- Help evaluate whether late-election relief may be available for your situation.
- Respond to IRS notices and requests for information directly on your behalf.
- Represent you in U.S. Tax Court if the matter escalates beyond a notice.
A missed PFIC filing can give the IRS more time to review the related tax return until you provide the required information. Reasonable-cause rules may limit how much of the return stays open.
Why Trust an Attorney to Handle Your PFIC Election
Attorney-client privilege can protect what you share with us, while a tax preparer cannot offer the same protection if a case turns adversarial. We treat your PFIC election as a planning decision because we know how this choice affects your tax outcome for as long as you hold the investment.
Talk to a Silver Tax Group PFIC Attorney
Filing this year? We can help evaluate your election options before your deadline passes. Already filed or missed a year? We assess whether late-election relief or a correction is available. Contact us at 855-900-1040 to get started, or schedule an online consultation to find out which election best fits your situation.
