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August 19, 2011 - Phil Hodgen

Time required to prepare Form 8621

Our consistent advice to U.S. taxpayers is “Sell all of your foreign mutual funds.” Foreign mutual funds are almost always Passive Foreign Investment Companies — PFICs. We tell people to get rid of foreign mutual funds and buy individual stocks and bonds.

The advice has nothing to do with investment strategy. It has everything to do with preventing brain damage and huge tax return preparation bills. Form 8621 is a bear to prepare.

For kicks, download the Instructions to Form 8621. (PDF). Flip to the bottom of the last page of the Instructions. There the IRS gives you the estimated amount of time required for you to prepare Form 8621:

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is shown below.

Here are the time estimates by the IRS:

  • Recordkeeping: 13 hrs., 37 min.
  • Learning about the law or the form: 8 hrs., 38 min.
  • Preparing and sending the form to the IRS: 9 hrs., 14 min

Grand total? 31 hours, 29 minutes. YMMV. I personally have spent more than 8 hours learning about the law this week. And I live on Planet Tax and frolic in the PFIC playground, so I am somewhat acclimatized. For those of you without a lot of background in PFICs and Form 8621, the damage is probably worse.

PFIC and CFCs