Form 8621 PFIC Reporting: Passive Foreign Investment Company Rules

Subpart F Expansion, New U.S. Shareholder Rules, Dealing With Dual CFC/PFIC Status, QEF Elections, Calculating Tax and Interest

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

Conducted on Thursday, September 24, 2020

Recorded event now available

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Course Materials

This course will furnish tax advisers with a thorough and practical guide to the reporting of investments in a passive foreign investment company (PFIC) on IRS Form 8621. The panel will identify those investments that require PFIC reporting, outline the various elections available to taxpayers holding interests in PFICs, and discuss the tax implications of those elections. The panel will provide an example of a completed Form 8621 to illustrate reporting requirements.


The PFIC rules have long been among the most rigorous in all of the Internal Revenue Code, and the 2017 tax reform law increased both the complexity and the reach of the PFIC regime. Section 1297 exposes U.S. taxpayers owning stock in PFICs to an ordinary income and accrued interest regime that is complicated and expensive.

The PFIC rules are intended to prevent U.S. persons from deferring U.S. taxation on passive investments held through foreign companies. Section 1297 defines a foreign corporation as a PFIC if either (1) 75 percent or more of its gross income is passive income (the income test), or (2) at least 50 percent of its average percentage of assets is held for the production of passive income (the asset test). While these thresholds seem straightforward, the rules contain numerous exceptions and exclusions to the definitions, which present challenges to taxpayers with potential PFIC exposure. Further complicating matters, foreign investment funds are not required to furnish U.S. persons with any tax reporting information, so the responsibility falls entirely on the shareholder to determine ownership share and tax obligations arising from that share.

The number of foreign corporations considered both PFICs and controlled foreign corporations (CFCs) under Subpart F has increased. U.S. shareholders must determine whether to elect out of PFIC status through a QEF election or to have their holdings treated as both PFICs and CFCs.

This additional election--which involves gain recognition--is reported on Form 8621. Alternatively, taxpayers holding PFIC stock may be able to make a mark-to-market election for their PFIC stock, reporting proceeds from deemed sales annually as ordinary income, but only if the PFIC stock is publicly traded. However, each method of electing out of PFIC treatment has tax and reporting consequences, and tax advisers must have a thorough knowledge of the tax impact of these elections in advising their clients.

Listen as our experienced panel goes beyond the basics of Form 8621 to provide a thorough discussion of QEF elections and other means of avoiding the PFIC regime.



  1. Code provisions governing PFIC treatment, purging, and deemed distribution rules
    1. Section 1291 default treatment
    2. Section 1295 QEF provisions
    3. Section 1296 mark-to-market option
    4. Section 1298 special rules
  2. Ownership rules
    1. When a pass-through entity owns PFIC shares
    2. When a trust or estate owns PFIC shares
  3. Rules when a foreign corporation or entity is classified as both a PFIC and a CFC
  4. Purging elections to remove PFIC "taint"
    1. Making election in the year of purchase
    2. Making election in a subsequent year after initial purchase
    3. Mark-to-market elections
    4. Entity classification elections
  5. Completing Form 8621


The panel will discuss these and other relevant topics:

  • The legal background of PFICs and general rules
  • Locating and interpreting PFIC information on foreign fund statements
  • Identifying and calculating "excess distributions" under the PFIC rules
  • Calculating tax and interest on eligible distributions
  • Tax treatment of distributions not considered "excess"
  • Alternate options and elections for PFICs


Freeman, Jason
Jason B. Freeman, J.D., CPA

Founder and Managing Member
Freeman Law

Mr. Freeman is a dual-credentialed attorney-CPA, author, law professor, and trial attorney. He represents clients in...  |  Read More

Ghassemieh, Mehrdad
Mehrdad Ghassemieh

Harlowe & Falk

Mr. Ghassemieh's practice focuses on assisting companies of all sizes, in all business and tax matters,...  |  Read More

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