General Instructions

Table of Contents

What's New

  • In the filer identification section, a line has been added to request the reference ID number of the PFIC or QEF. See page 3 for more information.

  • New Part I, Summary of Annual Information was added to reflect the new annual filing requirement of section 1298(f) which was added by section 521 of the Hiring Incentives to Restore Employment Act of 2010. However, this new Part I is not required until the underlying regulations are published. For now, they have been marked as Reserved For Future Use. Form 8621 will be revised when Part I becomes effective.

  • The elections in Part II of the form have been reordered and the filing requirements for new elections F, G, and H have been modified. Please complete Part II carefully with these changes in mind. See the instructions for Part II for more information.

Who Must File

Generally, a U.S. person that is a direct or indirect shareholder of a PFIC must file Form 8621 for each tax year under the following three circumstances:

  1. Receives certain direct or indirect distributions from a PFIC,

  2. Recognizes gain on a direct or indirect disposition of PFIC stock,

  3. Is making an election reportable in Part II of the form.

A separate Form 8621 must be filed for each PFIC in which stock is held directly or indirectly. See Chain of ownership below for specific filing requirements.

Indirect shareholder.    Generally, a U.S. person is an indirect shareholder of a PFIC if it is:

  • A direct or indirect owner of a pass-through entity that is a direct or indirect shareholder of a PFIC,

  • A shareholder of a PFIC that is a shareholder of another PFIC, or

  • A 50%-or-more shareholder of a foreign corporation that is not a PFIC and that directly or indirectly owns stock of a PFIC.

  For purposes of these rules, a pass-through entity is a partnership, S Corporation, trust, or estate.

Interest holder of pass-through entities.   The following interest holders must file Form 8621 under the three circumstances described earlier:

  1. A U.S. person that is an interest holder of a foreign pass-through entity that is a direct or indirect shareholder of a PFIC,

  2. A U.S. person that is considered (under sections 671 through 679) the shareholder of PFIC stock held in trust, and

  3. A U.S. partnership, S corporation, U.S. trust (other than a trust that is subject to sections 671 through 679 for the PFIC stock), or U.S. estate that is a direct or indirect shareholder of a PFIC.

Note.

U.S. persons that are interest holders of pass-through entities described in 3 above must file Form 8621 if the pass-through entity fails to file such form or the U.S. person is required to recognize any income under section 1291.

Chain of ownership.   Under the three circumstances described earlier, if the shareholder owns one PFIC and through that PFIC owns one or more other PFICs, the shareholder must either:

  1. File a Form 8621 for each PFIC in the chain or

  2. Complete Form 8621 for the first PFIC and, in an attachment, provide the information required on Form 8621 for each of the other PFICs in the chain.

When and Where To File

Attach Form 8621 to the shareholder's tax return (or, if applicable, partnership or exempt organization return) and file both by the due date, including extensions, of the return at the Internal Revenue Service Center where the tax return is required to be filed.

If you are not required to file an income tax return or other return for the tax year, file Form 8621 directly with the Internal Revenue Service Center, Ogden, UT 84201-0201.

Definitions and Special Rules

Passive Foreign Investment Company (PFIC)

A foreign corporation is a PFIC if it meets either the income or asset test described below.

  1. Income test. 75% or more of the corporation's gross income for its taxable year is passive income (as defined in section 1297(b)).

  2. Asset test. At least 50% of the average percentage of assets (determined under section 1297(e)) held by the foreign corporation during the taxable year are assets that produce passive income or that are held for the production of passive income.

Basis for measuring assets.   When determining PFIC status using the asset test, a foreign corporation may use adjusted basis if:

  1. The corporation is not publicly traded for the taxable year and

  2. The corporation is (a) a controlled foreign corporation within the meaning of section 957 (CFC) or (b) makes an election to use adjusted basis.

  Publicly traded corporations must use fair market value when determining PFIC status using the asset test.

Look-thru rule.   When determining if a foreign corporation that owns at least 25% (by value) of another corporation is a PFIC, the foreign corporation is treated as if it held a proportionate share of the assets and received directly its proportionate share of the income of the 25%-or-more owned corporation.

CFC overlap rule.   A 10% U.S. shareholder (defined in section 951(b)) that includes in income its pro rata share of subpart F income for stock of a CFC that is also a PFIC generally will not be subject to the PFIC provisions for the same stock during the qualified portion of the shareholder's holding period of the stock in the PFIC. This exception does not apply to option holders. For more information, see section 1297(d).

Note.

The attribution rules of section 1298(a)(2)(B) will continue to apply even if the foreign corporation is not treated as a PFIC with respect to the shareholder under section 1297(d).

Qualified Electing Fund (QEF) Election

A PFIC is a QEF if a U.S. person who is a direct or indirect shareholder of the PFIC elects (under section 1295) to treat the PFIC as a QEF. See the instructions for Election A later for information on making this election.

Tax Consequences for Shareholders of a QEF

  • A shareholder of a QEF must annually include in gross income as ordinary income its pro rata share of the ordinary earnings and as long-term capital gain its pro rata share of the net capital gain of the QEF.

  • The shareholder may elect to extend the time for payment of tax on its share of the undistributed earnings of the QEF (Election B) until the QEF election is terminated.

  • If the QEF election is not made with respect to the first year of the shareholder’s holding period in the PFIC, the shareholder may be able to make a deemed sale election (Election D) or deemed dividend election (Election E) (if eligible). If the shareholder properly makes a deemed sale election or deemed dividend election in connection with its QEF election, then the PFIC will become a pedigreed QEF (as defined in Regulation section 1.1291-9(j)(2)(ii)) with respect to the shareholder.

Note.

A shareholder that receives a distribution from an unpedigreed QEF (defined in Regulations section 1.1291-9(j)(2)(iii)) is also subject to the rules applicable to a shareholder of a section 1291 fund (see below).

Basis adjustments.   A shareholder's basis in the stock of a QEF is increased by the earnings included in gross income and decreased by a distribution from the QEF to the extent of previously taxed amounts.

Section 1291 Fund

A PFIC is a section 1291 fund if:

  1. The shareholder did not elect to treat the PFIC as a QEF or make a mark-to-market election with respect to the PFIC or

  2. The PFIC is an unpedigreed QEF (as defined in Regulations section 1.1291-9(j)(2)(iii)).

Tax Consequences for Shareholders of a Section 1291 Fund

Shareholders of a section 1291 fund are subject to special rules when they receive an excess distribution (defined below) from, or recognize gain on the sale or disposition of the stock of, a section 1291 fund. A distribution may be partly or wholly an excess distribution. The entire amount of gain from the disposition of a section 1291 fund is treated as an excess distribution.

Excess distributions.   An excess distribution is the part of the distribution received from a section 1291 fund in the current tax year that is greater than 125% of the average distributions received in respect of such stock by the shareholder during the 3 preceding tax years (or, if shorter, the portion of the shareholder's holding period before the current tax year). No part of a distribution received or deemed received during the first tax year of the shareholder's holding period of the stock will be treated as an excess distribution.

  The excess distribution is determined on a per share basis and is allocated to each day in the shareholder's holding period of the stock. See section 1291(b)(3) for adjustments that are made when determining if a distribution is an excess distribution.

   Portions of an excess distribution are treated differently. The portions allocated to the days in the current tax year and the shareholder's tax years in its holding period before the foreign corporation qualified as a PFIC (pre-PFIC years) are taxed as ordinary income. The portions allocated to the days in the shareholder's tax years (other than the current tax year) in its holding period when the foreign corporation was a PFIC are not included in income, but are subject to the separate tax and interest charge set forth in section 1291(c).

  See the instructions for Part V, later.

Exempt organizations.   If a shareholder of a PFIC is a tax exempt organization, the rules of section 1291 will apply only if a dividend from the PFIC would be taxable to the shareholder under subchapter F.

Mark-to-Market Election

A U.S. shareholder of a PFIC may elect to mark the PFIC stock to market if the stock is “marketable stock.” See the instructions for Election C later for information on making this election.

Marketable stock.   Marketable stock is:

  • PFIC stock that is regularly traded (as defined in Regulations section 1.1296-2(b)) on:

    1. A national securities exchange that is registered with the Securities and Exchange Commission (SEC),

    2. The national market system established under section 11A of the Securities Exchange Act of 1934, or

    3. A foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located and has the characteristics described in Regulations section 1.1296-2(c)(1)(ii).

  • Stock in certain PFICs described in Regulations section 1.1296-2(d).

  For additional information, including special rules for RICs that own PFIC stock, see Regulations section 1.1296-1 and 1.1296-2.

Tax Consequences

If a PFIC shareholder elects to mark the stock to market, the shareholder either:

  1. Includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock or

  2. Is allowed a deduction equal to the lesser of:

    1. The excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the tax year or

    2. The excess, if any, of the amount of mark-to-market gain included in the gross income of the PFIC shareholder for prior taxable years over the amount allowed such PFIC shareholder as a deduction for a loss with respect to such stock for prior taxable years.

See the instructions for Part IV later for more information.

Basis adjustment.   If the stock is held directly, the shareholder's adjusted basis in the PFIC stock is increased by the amount included in income and decreased by any deductions allowed. If the stock is owned indirectly through foreign entities, see Regulations section 1.1296-1(d)(2).

Additional Information Required

A shareholder of a PFIC must attach certain information to Form 8621. This information includes:

  • The number of shares in each class of stock owned by the shareholder at the beginning of its tax year;

  • Any changes in the number of shares in each class of stock during its tax year and the dates of such changes; and

  • The number of shares in each class of stock at the end of its tax year.

Reportable transaction disclosure statement.    A 10-percent shareholder (by vote or value) of a QEF also may be required to file Form 8886 if the QEF is considered to have participated in a reportable transaction pursuant to Regulations section 1.6011-4(c)(3)(i)(G). See Form 8886, Reportable Transaction Disclosure Statement, and Regulations section 1.6011-4 for additional information.

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