Opting Out of PFIC Tax-and-Interest Treatment: Making QEF Elections on Form 8621 Part II

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

Conducted on Thursday, October 20, 2016

Recorded event now available

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Course Materials

This course will provide tax advisers with a guide to the complex Qualified Election Fund (QEF) election rules for foreign investments that qualify as a Passive Foreign Investment Company (PFIC). The panel will go beyond the mechanics of PFIC reporting to detail the advantages, disadvantages and calculations involved in making a QEF election. The webinar will discuss making a “deemed sale election” after the year of purchase, detail how to report the election on Form 8621, and define the planning opportunities in electing out of PFIC treatment.


Among the most onerous of all IRS reporting regimes is the Passive Foreign Investment Company (PFIC) designation for certain foreign investments held by U.S. taxpayers. The impact of the PFIC designation is to subject taxpayers owning qualifying assets to a tax and accrued interest regime that is both complicated and expensive.

Because the PFIC regime is intended to prevent U.S. persons from deferring U.S. taxation on passive investments held through foreign companies, taxpayers may avoid the tax-and-interest treatment by electing current tax treatment of their PFIC holdings. The primary mechanism for opting out of the PFIC regime is by making an election to treat the PFIC as a qualifying electing fund (QEF), which allows taxpayers to avoid interest accrual by paying tax on their pro rata share of income from the QEF.

The QEF election avoids the tax-and-interest scheme altogether if made at the time the foreign investment is acquired. Taxpayers wishing to make a QEF election in subsequent years must make additional elections to remove the “taint” of PFIC status from the asset. These additional elections, which involve gain recognition, are reported on Form 8621. In addition to a QEF election, some taxpayers holding PFIC assets may make a mark-to-market election for their foreign entity shares, reporting proceeds from deemed sales as ordinary income.

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. Possible advantages of QEF election
  2. Making election in year of purchase
  3. Making election in a subsequent year after initial purchase
  4. Mark-to-market elections
  5. Reporting the election on Form 8621 Part II


The panel will discuss these and other important issues:

  • Identifying assets that qualify as PFIC holdings
  • Differentiating tax results between PFIC, mark-to-market and QEF scenarios
  • Calculating tax impact of QEF election in a year subsequent to acquisition of the PFIC asset
  • Where to report QEF and purging elections on Form 8621


Bortnick, Steven
Steven D. Bortnick

Troutman Pepper Hamilton Sanders

Mr. Bortnick is a partner in the firm's tax practice group and focuses his practice on domestic and...  |  Read More

Skinner, William
William R. Skinner

Fenwick & West

Mr. Skinner focuses his practice on U.S. international taxation, with a particular emphasis on tax planning and...  |  Read More

Phelan, Thomas
Thomas D. Phelan

Troutman Pepper Hamilton Sanders

Mr. Phelan focuses his practice on tax law. He has written on tax law issues and co-authored an article with Steven...  |  Read More

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