Sections §1291-1298 of the Internal Revenue Code are among the most complicated and convoluted in the entire US Tax Code. Part of what makes them so difficult is that there are choices you can make in how you want the IRS to treat a passive foreign investment company (PFIC). Making the wrong choice can cost the shareholder a lot more in tax and interest. The taxation options available range from extremely punitive to similar to the tax treatment of US mutual funds, but not every option is available to every person every year. Understanding the various options and which ones make the most sense for the taxpayer’s situation is very important. After deciding on a course of action you need to decipher the math involved in preparing a complete and correct form 8621.
If you are thinking that this is just too complicated and that the IRS cannot really expect anyone to be able to follow their “clear and concise” multisyllabic maze of “if this- then that” directions chocked full of phrases like unreversed inclusions, unpedigreed qualified electing funds, and purge the taint. Think again- the IRS is one step ahead of you- §6501(c)(8)(A) states that in any year the form is required and not filed the statute of limitations does not run and the entire tax return remains open to IRS scrutiny and assessment until the oversight has been remedied and the 3 subsequent years have passed
While we cannot teach you everything there is to know about PFIC taxation within the pages of our website, we can get you pointed in the right direction.
These are the three main ways the investments are taxed for federal purposes: