The default and most punitive method of PFIC taxation. The basic premise being that the taxpayer will be treated as if any gain and excess distributions in the investment were received evenly over the period of ownership and that the taxpayer was in the highest tax bracket during each year other than the current.
Figuring out the correct amount of section 1291 tax and interest is a complex, convoluted and layered set of calculations capable of stumping even the most brilliant tax professional. Don’t waste your valuable time doing math when you can let our software do it in minutes.
Mark to Market
The Mark to Market election under §1296 is an optional method of PFIC taxation that is better than §1291 but generally not as friendly as a QEF election. In a nutshell- any unrealized gain a PFIC has during the tax year is included in the shareholder’s income as ordinary income. If the investment has lost value over the year losses are allowed but only to the extent of “unreversed inclusions” or previously included gain.
Sounds simple until you read the regulations. You have to start with a section 1291 purge-then all gains and unreversed inclusions are tracked by share. The basis of each share is also tracked separately and must be adjusted up or down according to income inclusions and unreversed inclusions allowed each year.
We make this as simple as ticking a box.
Qualified Electing Fund (QEF)
The QEF or Qualified Electing Fund election under §1295 is optional method of taxation available for PFICs that provide an Annual Statement to the Shareholders. This election most closely mirrors the US taxation of US mutual funds and allows for capital gains treatment of some of the income as long as any prior §1291 gain has been dealt with. There is a catch to this gentler taxation, of course- there is phantom income included on the tax return each year and basis must be adjusted and tracked per share. Oh, and we should mention that sales of fiscal year PFICs may cause an even larger PFIC headache.
The form 8621 calculator handles both the Pedigreed and unpedigreed QEF calculations, and the required adjustments when the QEF and the taxpayers tax year does not line up.
When a QEF election is made the taxpayer has the option to “purge” any prior gain in the PFIC by doing a deemed disposition under §1291 rules and paying any §1291 tax and interest. If the deemed sale election is not made, the taxpayer will have to deal with the §1291 rules when the investment is actually sold.
Making the deemed sale election in the software is as simple as selecting a checkbox. The calculator will purge the taint and switches to the pedigreed QEF calculations.
Becoming a US Person
Did your client just become subject to US taxation?
Applying the transitional rule in the first year your client becomes subject to the PFIC rules you can prevent 1291 taxation on built in gains. Remember if the investment isn’t owned by a US taxpayer- it isn’t a PFIC- “yet”. By making the Mark to Market election in the year when someone becomes subject to US tax, you can “step up” the cost base of the PFIC investment to the fair market value of the investment on the date of change.
Form 8621 Calculator makes this process easy! The software asks for the market value on the date of change and applies the transitional rule automatically.
Did your client just become NOT subject to US taxation?
Under the temporary regs, PFICs owned by a person that is no longer going to be subject to US tax are treated as sold on the last day the taxpayer is considered a US person. Make deemed dispositions easy- The 8621 Calculator loves doing deemed dispositions.
George is the creator of the Form 8621 Calculator software. With more than 20 years of programming experience and extensive knowledge of international taxation, George is one of the pre-eminent PFIC experts in the world. His in-depth study of Internal Revenue Code sections 1291- 1298 coupled with his skills in writing code has made the Form 8621 Calculator one of the greatest innovations in the world of tax software in years.
George hails from Hungary lives in maritime Canada and personally handles our programming, technical assistance and training.
Mary Beth Lougen
Mary Beth, a dual US Canadian citizen, has more than 35 years of US income tax experience working in both the US & Canada. She is an Enrolled Agent, a US Tax Court Practitioner, and a respected writer and teacher in the world of cross border taxation. Her professional expertise and personal experience make Mary Beth a perfect fit to provide theory assistance, training and head up the Form 8621 Preparation services.
You will find her at various tax conferences as a speaker or manning the Form 8621 Software booth, when she isn’t hanging at home in Virginia Beach with her Bernese Mountain Dog, Sophie.
Raymond Barry Fisher
Barry is not a tax practitioner, but he has been part of Expat Tax Tools and the Form 8621 Calculator from the very beginning. An artistic and talented decorator, he brings a non-tax eye to our company and provides valuable insight to us from his unique point of view. Barry is instrumental in the production of our marketing and visuals, in addition to administrative duties overseeing the invoicing and licensing processes for the Form 8621 Calculator.
A native of Ontario living on Prince Edward Island, he enjoys restoring his 125 year old island home in his spare time.
Bob has been a leader in tax preparation services for his entire career. As a dual US Canadian citizen and former Senior Executive for the largest tax preparation firm in North America, he possesses an unparalleled knowledge and understanding of this highly specialized industry that spans single owner operator offices to large multinational accounting firms. His talent and insight makes him invaluable in providing strategic direction and assistance with the product launches for Expat Tax Tools.
Bob lives in Virginia Beach and has competed nationally in the sport of sprint triathlons.
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WHAT OTHERS SAY
Debra Rudd, CPA
Ariel Rosenthal, CPA
Ariel Rosenthal Ltd.
Royale Schonbrun, CPA
Royale Schonbrun and Company
Expat Tax Tools is making taxes easier one form at a time. The Form 8621 Calculator is used worldwide bringing speed and confidence to taxpayers and tax practitioners.
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