Tax Power U.S. Tax & Business Advisory Services and Solutions

Home / Up / Our Team / Tax Terms / Search Page / Tax History / Why Pay Tax / Tax Problems / Contact Us / Fees & Policies / Fee Payments     

 

Andy Powers-A Professional who cares..About YOU!

Home
Up
Expatriate Tax Questions
U.S. Expatriates
Foreign Nationals
Relocation
Tax News
How The ACA Affects Your Taxes
Why Choose Powers
Standard Approach
Individual Taxes
Business Tax
Employment Issues
Small Business
IFRS
Public Realtions & Marketing
Business Management
U.S. Constitution
Clients
US Economic Survival
Due Diligence
IRS Denying FEIE to U.S. expats
Foreign National US Tax Guide
FATCA
2012 OVDI
Refund Delays
FUI
Tax Court Limits IRA Rolloves
           

 

 

 

 

New Reporting Rules for Foreign Mutual Fund (PFIC) Owners

The position of the IRS is that all non U.S. mutual funds are considered to be PFICs unless they are formed not by a foreign corporation buy instead by a foreign trust, which is unlikely (but if it was a trust you may need to file Form 3520) that accumulated within the foreign mutual fund on their Schedule B of their income tax return, reported the Mutual Fund on their FBAR and that was all was required. However once the Foreign Account Tax Compliance Act (FATCA) was passed in 2010, these and other specified foreign financial assets needed to be reported on Form 8938. Also, pursuant to Section 521 of the Hiring Incentives to Restore Employment (HIRE) Act, not only was FATCA enacted, a new provision to the Internal Revenue Code was added, Section 1298(f) which modified the rules regarding who must file Form 8921 to include any U.S. person (as defined by the Code), regardless of the type of return that they filed, who had a financial interest in a foreign mutual fund. This means if you purchased even one unit of a foreign mutual fund that you need to file Form 8621 beginning with the 2012 filing (I am assuming that the final revised Form 8621 will be available for filing for 2012 tax returns as the draft has been ready for some time now). The other thing that I need to point out is that the Form 8621 will be required to be included with the U.S. income tax return for each and every year and will be die with the filing of the income tax return. It is expected that the IRS will require that these returns to be filed at a special IRS processing center rather than the normal filing center where one would customarily file their tax return, especially in the year that an election is made (see below).

The PFIC rules are complicated and I will not go into detail as to how they work other than to say that they are financially punitive. They were originally created as part of the Tax Reform Act of 1986 as a means to discourage U.S. persons from sheltering assets offshore. The two main elections that are available to avoid PFIC taxation are the Qualified Election Fund (QEF) election, and the Mark to market elections, both designed to currently tax the inside profits within the offshore mutual fund. The type of election to be made will depend on the facts and circumstances of the individual taxpayer.

The bottom line is, regardless of if you are an individual who is a U.S. resident filer due to citizenship, legal permanent residence (Green Card) or meet the substantial presence test (even if you file a Form 1040NR due to a treaty provision overruling the U.S. residency requirements, or a U.S. business entity; if you hold an investment in a foreign mutual fund you will most likely need to file Form 8621 and consider the tax consequences of  having an investment in a PFIC and if an election to remove the PFIC tax taint is appropriate and if so, which election is best.

 

Copyright © 1999-2013 IRS CIRCULAR 230 NOTICE:  To ensure compliance with recently enacted U.S. Treasury Department regulations, we hereby advise you that any and all tax information contained in this website should not be considered as tax advice nor intended for the use of any taxpayer for the purpose of evading or avoiding tax penalties that may be imposed pursuant to U.S. law. Furthermore, the use of any tax information contained in this communication has neither been written nor intended for the purpose of promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, and such taxpayer should seek advice on the taxpayer’s particular circumstances from an independent tax advisor. The information contained throughout this web site is provided without charge, and although all efforts have been made to ensure the reliability of the information contained in this internet web site, the information contained herein should be used for general understanding only and should not be relied upon exclusively as the basis of any tax or financial decisions or for any positions taken on any tax return. Advice should only be obtained directly through the retention of a competent tax advisor. Tax Power is an established trademark of Powers & Company, Inc. and Powers Tax Services since 1999. Unauthorized use of the phrase Tax Power without expressed permission of Powers & Company, Inc. will be prosecuted to the fullest extent of the law. Last modified: January 10, 2014 The articles, guides and published information contained in this website is protected by U.S. copyright laws and cannot be reproduced in any form without the expressed permission.

       Visitors since January 1, 2010   Hit Counter