Am I required to file Form 8621 for my PFIC holdings?
Published on February 14, 2024
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
Yes, if you are a US person and have any direct or indirect holdings in a Passive Foreign Investment Company (PFIC), you are required to file Form 8621. This requirement applies regardless of the amount of your investment or whether you received any distributions from the PFIC during the tax year.
What is Form 8621?
Form 8621, “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund,” is a tax form used by certain US persons who have investments in passive foreign investment companies (PFICs).
This form is used to report the income and any gains or losses from such investments. It’s a crucial form for US expats as it relates to investments in foreign mutual funds, index funds, hedge funds, or other pooled investments that are based outside of the United States.
Who is required to file Form 8621?
The requirement to file Form 8621 applies to US persons, which include US citizens, residents, and entities such as corporations, partnerships, or trusts, who:
- Directly own shares in a PFIC,
- Are indirect shareholders of a PFIC through an entity,
- Have made certain elections regarding their PFIC holdings,
- Receive certain direct or indirect distributions from a PFIC,
- Recognize gains on a direct or indirect disposition of PFIC shares.
What are the filing requirements for Form 8621?
It usually depends on the taxpayer’s situation, however, it generally includes:
- Annual Filing: Generally, Form 8621 must be filed annually with the taxpayer’s federal income tax return.
- Reporting Income: Taxpayers must report their share of earnings and any gains distributed or recognized on PFIC investments.
- Election Reporting: If certain elections, like the Qualified Electing Fund (QEF) or Mark-to-Market election, are made, these must be reported on Form 8621.
- No Tax Due Filing: In some cases, Form 8621 is required even if there is no tax due. This can occur if the taxpayer did not receive any distributions and did not recognize any gains on their PFIC shares during the tax year.
Why use the IRS Streamlined Tax Amnesty Program?
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties.
Connect with over 10,000+ expats today!
Embarking on an international journey shouldn’t mean navigating the complex world of US taxation alone. If you’re living and working abroad, our friendly, supportive Expat Tax Online Help Facebook group is here to assist. We’ve designed a community that serves as a comprehensive guide and resource platform tailored for US expats.
What foreign investments are reported on Form 8621?
This form is required for investments in Passive Foreign Investment Companies (PFICs). Specifically, those with interests in foreign mutual funds, hedge funds, insurance products, or other pooled investments typically need to use this form to comply with US tax regulations.
What types of investments are considered PFICs?
PFICs generally include foreign-based investment vehicles that meet either of the following criteria:
- Income Test: At least 75% of the corporation’s gross income is passive income, such as dividends, interest, or royalties.
- Asset Test: At least 50% of the corporation’s assets are investments that produce passive income.
Additionally, common examples of PFICs include foreign mutual funds, money market accounts, pension funds, and other pooled investments that are based outside of the United States.
What information do I need to report on Form 8621?
When filing Form 8621, you’ll need to provide detailed information about your PFIC holdings, including:
- Identification of the PFIC: Name, address, and tax identification number of the foreign corporation.
- Shareholder Information: Your details as the shareholder, including the number of shares held during the tax year.
- Income and Distributions: Details of any income received from the PFIC, such as dividends or interest.
- Elections Made: If you’ve made any specific tax elections regarding your PFIC holdings, such as a Qualified Electing Fund (QEF) or Mark-to-Market election, these must be reported.
- Calculations of Gains or Losses: If you’ve sold or disposed of PFIC shares, you need to calculate and report any gains or losses.
Is there a minimum ownership threshold for reporting a PFIC?
There is no minimum ownership threshold for reporting a Passive Foreign Investment Company (PFIC) on Form 8621. US taxpayers, including expats, are required to file Form 8621 if they have any direct or indirect ownership in a PFIC, regardless of the amount.
This means even a small investment in a foreign mutual fund or similar financial vehicle could necessitate filing Form 8621. The key is whether the foreign investment meets the criteria of a PFIC, not the amount of the investment.
Are there different rules for individuals and entities when it comes to Form 8621 reporting?
The rules for filing Form 8621 apply to both individuals and entities, such as corporations, partnerships, trusts, or estates, with some nuances:
- Individuals: US citizens and residents must report their PFIC holdings regardless of where they live. This includes ex-pats who may have invested in foreign funds.
- Entities: US entities, including those owned by expats, are also subject to PFIC reporting requirements. The entity must file Form 8621 if it owns, directly or indirectly, shares of a PFIC.
Can I aggregate PFIC investments on a single Form 8621?
Generally, a separate Form 8621 must be filed for each PFIC in which you have an interest.
Aggregating multiple PFIC investments on a single form is not typically allowed.
Each investment in a PFIC is treated separately for reporting purposes, requiring individual attention to detail for each form. This ensures accurate reporting of income, distributions, and any elections made for each PFIC.
What if I have multiple PFICs with different fiscal years?
When you have multiple Passive Foreign Investment Companies (PFICs) with different fiscal years, each PFIC must be reported separately on Form 8621 according to its respective fiscal year.
This means you may need to track and report each investment based on its unique reporting period. This can be particularly challenging for US expats with diverse international portfolios, as it requires careful attention to the fiscal year-end of each PFIC to ensure accurate and timely reporting.
Are there any exceptions or exemptions from Form 8621 reporting?
There are limited exceptions and exemptions from filing Form 8621, such as:
- De Minimis Ownership Rule: If the total value of your PFIC shares is less than $25,000 ($50,000 for married couples filing jointly), you may not need to file Form 8621, unless you have received certain direct or indirect distributions or dividends from the PFIC.
- Mark-to-Market Election: Taxpayers who make a mark-to-market election under IRC §1296 for a PFIC need to file Form 8621.
How do I file Form 8621 with my tax return?
Form 8621 should be filed along with your annual US income tax return (Form 1040). If you have multiple PFICs, a separate Form 8621 must be completed for each one.
The form requires detailed information about the PFIC and your share of its income, gains, distributions, and any elections made. It’s important to ensure that each form is accurately completed and submitted by the tax return filing deadline.
Can I get assistance or guidance on Form 8621 reporting from the IRS?
While the IRS provides general guidance and instructions for Form 8621 on its website, specific assistance or personalized guidance is limited. For complex situations, especially those involving multiple PFICs or intricate tax scenarios, it’s advisable to seek assistance from a tax professional experienced in international taxation and PFIC reporting.
How long should I retain records related to Form 8621 reporting?
It’s recommended to retain records related to Form 8621 reporting for at least seven years. This includes documentation of your investments in PFICs, calculations of income or gains, and any elections made.
Keeping thorough records is essential for substantiating the information reported on Form 8621 in case of an IRS inquiry or audit.
Spread the word. Please share… 👉
