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 Tuesday, October 17, 2017

Recorded event now available

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Program Materials

This webinar will provide tax advisers with a guide to the complex Qualified Electing Fund (QEF) election rules for foreign investments that are Passive Foreign Investment Companies (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.

Description

Among the most complex regimes of taxation and reporting under the Code is that which results from the classification of certain foreign investments held by U.S. taxpayers as investments in Passive Foreign Investment Companies (PFICs). The impact of the PFIC designation is to subject U.S. investors 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 qualified 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 an appropriate additional election to remove the “taint” of PFIC status from the asset. These additional elections, which involve gain recognition, are reported on Form 8621.

Alternatively, taxpayers whose PFIC stock is marketable may elect to mark such stock to market and report proceeds from the 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.

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Outline

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

Benefits

The panel will discuss these and other important issues:

  • Identifying assets that constitute PFIC holdings
  • Differentiating tax results between PFIC, mark-to-market and QEF scenarios
  • Identifying 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

Faculty

Knobler, Michael
Michael Knobler

Fenwick & West

Mr. Knobler focuses his practice on U.S. international and domestic tax planning, mergers and acquisitions, and...  |  Read More

Phelan, Thomas
Thomas D. Phelan

Pepper Hamilton

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

Stauber, David
David Stauber

Of Counsel
Pepper Hamilton

Mr. Stauber focuses his practice on the federal income tax aspects of mergers and acquisitions, fund formation, and...  |  Read More

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