Navigating Passive Foreign Investment Companies: A Clear Guide to a PFIC / Form 8612 Tax Filing

Taxes can be complex, particularly when they involve foreign investments. A key part of this process is understanding Passive Foreign Investment Companies (PFICs) and their impact on your tax situation.

We are expert U.S. tax accountants for foreign investments worldwide. For tailored foreign investment tax advice contact us.

This article should be used for informational purposes only. Please always seek advice from a certified U.S. Foreign Tax Advisor.

Below is a brief look at the need-to-know facts about the PFIC

1. What is a PFIC?

A Passive Foreign Investment Company (PFIC) is a foreign corporation that earns mostly passive income or has assets that produce such income. Foreign mutual funds, pension funds, and real estate investments are common examples of PFICs.

2. Who Needs to File a PFIC?

If you are a U.S. person - a citizen, resident, company, partnership, trust, or estate - and you own shares in a PFIC, you may need to file a PFIC with the IRS. Even investments that aren't standard corporations, like a trust, could count as a PFIC.

3. Why is Filing a PFIC Important?

Not reporting your PFIC can lead to high tax rates and penalties from the IRS. You can manage these by treating the PFIC as a Qualified Electing Fund (QEF) or choosing the Mark-to-Market (MTM) option. Both these choices require specific steps and documentation, which a foreign investment accountant can help with.

4. Identifying a PFIC

Below is a bit more information about what is classed as a PFIC. This is not a fully comprehensive list- please contact us for more information.

A PFIC is a Passive Foreign Investment Company, which is a foreign corporation.
A corporation is regarded as a PFIC if it meets either the Income Test or the Asset Test.
Under the Income Test, if 75% or more of a corporation's gross income is passive (from investments rather than regular business operations), it is a PFIC.
Under the Asset Test, a corporation is a PFIC if 50% or more of its assets produce or are intended to produce passive income.
Passive income usually comes from investments such as stocks, bonds, real estate, or other types of investment assets.
Common examples of PFICs include foreign mutual funds, foreign pension funds, and foreign real estate investments.

5. What Documents Do You Need to File a PFIC?

To file a PFIC, you will need to fill out IRS Form 8621. For this, gather the following:

Information about your investment: When you bought it, how much it cost, and how many shares you have.
Statements from the PFIC: These should show earnings, profits, any distributions, and any gains or losses.
Financial statements: If you're choosing QEF or MTM, you'll need more financial information.

6. Getting Help with PFIC Filing

Filing a PFIC can be difficult, and errors can lead to penalties. It can be useful to work with a foreign investment accountant who understands the process and can offer advice.

7. How Our Foreign Investment Accountant Services Can Help with PFIC Filing

Our tax firm specializes in U.S. tax accounting, with a focus on PFICs and foreign investments. We can help you understand tax laws, manage your foreign investments, and navigate the PFIC process.

If you're unsure about your foreign investment or think you might have a PFIC, reach out to us. As foreign investment accountants, we can explain the process, talk through your options, and help you meet all IRS requirements. With our help, dealing with PFICs can be less daunting and more straightforward.

Need to file a U.S. tax return and a PFIC- get your tailored quote within seconds using our U.S. tax fee quoter

Featured