Thinking about owning a passive foreign investment company (PFIC)? Perhaps through a (non-U.S.-owned) mutual fund?
Our advice, in just one word, is… “don’t!”
Why? Because the IRS punishes owners of PFICs with high tax-rates and extremely burdensome reporting requirements.
You might think that all this doesn’t apply to you, but you may be in for a big, nasty surprise. You see, many foreign investment vehicles and corporations are PFICs and you may own one without even knowing it!
Want to find out more and stay out of trouble with Uncle Sam? Read my new article titled Tax Time Bomb: Passive Foreign Investment Companies!
Three ways our fact-filled article can help you:
- We’ll tell you what PFICs are (so you can stay away from them!). A passive foreign investment company is any foreign corporation for which 75-percent or more of its gross income for the tax year comes from passive income, or 50-percent or more of its assets produce passive income or are held to produce passive income. You’ll get a complete, detailed explanation when you read the full article.
- You’ll learn how to report a PFIC and pay taxes on it. Reporting your PFIC ownership requires filing Form 8621… a complex, four-page form you have to file for each PFIC you own. The default way to pay taxes for a PFIC is found in Section 1291 of the tax code. Yes. This is complicated, but we’ll make everything clear when you read the full article.
- We’ll explain other options for reporting PFIC income. There are two relatively easier methods you can use. The mark-to-market (MTM) method or the qualified electing fund (QEF) method. Which one should you use to report PFIC income? You’ll find out when you read the full article.