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Form 8621 PFIC Reporting: Passive Foreign Investment Company Rules

Proposed and Final Regs, Subpart F Expansion, 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

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Conducted on Thursday, February 15, 2024

Recorded event now available

or call 1-800-926-7926

This course will furnish tax advisers with a thorough and practical guide to reporting 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 recent final and proposed regulations affecting PFICs. The panel will provide an example of a completed Form 8621 to illustrate reporting requirements.

Description

The PFIC rules have long been among the most rigorous in the Internal Revenue Code; Section 1297 exposes U.S. taxpayers owning stock in PFICs to an ordinary income and accrued interest regime that is complicated and expensive. The number of foreign corporations considering 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 have their holdings treated as 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.

In January 2022, the IRS and Treasury finalized prior proposed regulations treating partnerships as "aggregates" of their partners to determine inclusions of Subpart F income. At the same time, proposed regulations were issued that embraced this approach for the QEF and MTM elections.

Among the changes included, the proposed regulations provide that the partner or S corporation shareholder, as opposed to the entity, make the QEF and MTM elections. These partners and shareholders must notify the partnership or S corporation of the election so that the entity can comply and provide applicable reporting information. Tax advisers must have thorough knowledge of the tax impact of these elections and changes when 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.

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Outline

  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. Final (T.D. 9960) and proposed (REG-11850-20) regulations
  5. 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
  6. Completing Form 8621

Benefits

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
  • Proposed regulations, REG-11850-20, issued January 2022
  • Alternate options and elections for PFICs

Faculty

Chung, Sam
Sam Chung
Partner
Harlowe & Falk

Mr. Chung's practice includes assisting businesses of all sizes, in all business and tax matters. This includes...  |  Read More

Tohni, Eric
Eric Tohni
Director, Global Tax Reporting
Expedia Group

Mr. Tohni's responsibilities include compliance and provision reporting of Expedia Group's international...  |  Read More

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