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March 18, 2018 - Phil Hodgen

Upcoming Section 965 Workshop and a Collection of Links

The Tax Cuts and Jobs Act completely rewrote Section 965 to force a one-time repatriation of deferred earnings and profits in foreign corporations. It forces income recognition in the 2017 tax year, so there is not a lot of time to figure this one out!

Rufus Rhoades will give a one-hour free workshop on March 23, 2018 at 9:00 am Pacific Time. Register here; it’s free.

I call this a workshop because the intention is for Rufus to talk a bit about the new law, then we will open it up for questions and input. Some of you out there are smart about Section 965, so please share with us.... continue reading

American Business Abroad Minimultinationals PFIC and CFCs Speeches, Publications, and Events
January 25, 2018 - Haoshen Zhong

Tax Law Changes Made a CFC-PFIC Overlap Easier

This post notes a change in the way controlled foreign corporation (CFC) rules work now that the newly passed tax law is in effect. This change makes it more likely that a person would fall under the CFC rules instead of the passive foreign investment company (PFIC) rules. Unfortunately, it may have caused some persons to be subject to both the CFC rules and PFIC rules.

What are PFICs and CFCs?

Passive foreign investment company (PFIC) is a classification under US tax law. It is designed to discourage US persons from investing abroad through foreign investment vehicles. When a US person owns shares in a PFIC, the US person is subject to extremely punitive tax and reporting rules.... continue reading

PFIC and CFCs
January 11, 2018 - Haoshen Zhong

Active Rental Income Exception to Passive Income

Active rental income

This is a question we received through an email:

I own stock of a foreign real estate investment trust (REIT). It is a corporation under US tax law. It owns a hotel and rents rooms directly. It outsources the management of the hotel to an unrelated entity, but it has all the legal and contractual relationships with the guests.

In this post, I will discuss why this type of rental income is passive, which causes the REIT to be a passive foreign investment company (PFIC).

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law.... continue reading

PFIC and CFCs
December 28, 2017 - Haoshen Zhong

Tax Cuts on PFICs: Not Much Changed

Effect of the tax cut on PFICs

These are some notes I took about how the tax cut affects passive foreign investment companies (PFICs)–or does not affect PFICs.

The short answer is that not much changed, particularly if you are an individual. PFICs stay more or less as bad as they were before. The dramatic changes to tax law that just passed do not affect PFIC owners much.

Code references are to the amended provisions

The Code citations used in this post refer to provisions as amended by the tax cut–unless, of course, the citation notes that it refers to the provisions without amendment.... continue reading

PFIC and CFCs
December 14, 2017 - Haoshen Zhong

QEF Election for a Fiscal Year Company in the Year of Immigration

This is a war story:

I have owned shares of a foreign company that rents out a warehouse for years. It operates on a fiscal year ending 31 March, 2017. I immigrated to the US on 1 February, 2017. I believe it is a PFIC. I would like to make a QEF election. When do I make this election, and is there anything else I need to do?

In this post, I will explain why the shareholder would make a QEF election with his 2017 tax return, why he does not need to do a deemed sale election, and how the passthrough of income works for 2017.... continue reading

PFIC and CFCs