Insight Center: Webinars

Opting Out of PFIC Tax-and-Interest Treatment: Making QEF Elections on Form 8621 Part II

Speakers: Michael Knobler, Thomas D. Phelan and David Stauber

1:00 - 2:50 PM (ET)
Opting Out of PFIC Tax-and-Interest Treatment: Making QEF Elections on Form 8621 Part II

Presented by Strafford Publications, Inc.

Among the most complex regimes of taxation and reporting under the Code is that which results from the classification of certain foreign investments held by U.S. taxpayers as investments in Passive Foreign Investment Companies (PFICs). The impact of the PFIC designation is to subject U.S. investors to a tax and accrued interest regime that is both complicated and expensive.

Because the PFIC regime is intended to prevent U.S. persons from deferring U.S. taxation on passive investments held through foreign companies, taxpayers may avoid the tax-and-interest treatment by electing current tax treatment of their PFIC holdings. The primary mechanism for opting out of the PFIC regime is by making an election to treat the PFIC as a qualified electing fund (QEF), which allows taxpayers to avoid interest accrual by paying tax on their pro rata share of income from the QEF.

The QEF election avoids the tax-and-interest scheme altogether if made at the time the foreign investment is acquired. Taxpayers wishing to make a QEF election in subsequent years must make an appropriate additional election to remove the “taint” of PFIC status from the asset. These additional elections, which involve gain recognition, are reported on Form 8621.

Alternatively, taxpayers whose PFIC stock is marketable may elect to mark such stock to market and report proceeds from the deemed sales as ordinary income.

Listen as our experienced panel goes beyond the basics of Form 8621 to provide a thorough discussion of QEF elections and other means of avoiding the PFIC regime.

Key topics include:

  • Overview of PFICs
  • Possible advantages of QEF election
  • Making election in year of purchase
  • Making election in a subsequent year after initial purchase
  • Mark-to-market elections
  • Reporting the election on Form 8621 Part II

CLE credit available.

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