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May 18, 2017 - Haoshen Zhong

Attribution of PFICs Through a Family Trust

Today’s topic is based on some war stories we have seen. Here is the general situation we have had to deal with:

I am a US citizen living abroad and married to a foreign national. She and I both owned some PFICs. We transferred them to a family trust whose trustee is a private company we own 50-50. Our children and we are beneficiaries of the family trust. Do I have to report the PFICs held in the family trust as my own?

Today’s post will discuss some of the uncertainties and possible results for PFIC attribution through a trust.

What are PFICs?

... continue reading
PFIC and CFCs
May 4, 2017 - Haoshen Zhong

Are my Exchange Traded Notes PFICs?

Debts instruments that sound somewhat like shares

This is a question that came by way of email:

I own some exchange traded notes. Are those PFICs?

In this post, I will discuss the factors that you can examine to check whether buying a particular debt instrument carries any risk related to passive foreign investment companies. Then, we can check if exchange traded notes are debt or shares.

What are exchange traded notes?

Exchange traded notes (ETN) is a type of debt instrument. They have a fixed maturity date. They pay interest, but the rate of interest depends on an index or market benchmark.... continue reading

PFIC and CFCs
April 20, 2017 - Haoshen Zhong

PFIC Problems when Pooling Stock Reward

Pooling your stock reward

We got a fairly complex question about a US person pooled his stock reward with his coworkers. By doing so, the US person created a potential PFIC problem.

This post is a brainstorming session on how the US person might get out of his PFIC problems.

The scenario

Here is the scenario:

I am a manager of a private foreign business. In advance of an upcoming IPO, the private foreign business offered its managers the chance to buy shares in the top level parent corporation.

For the purpose of pooling our resources, the managers formed a foreign corporation (manager holding company) and bought shares of the parent corporation in the name of the manager holding company.

... continue reading
PFIC and CFCs
April 6, 2017 - Haoshen Zhong

Holding Business Real Estate in a Separate Company

Renting land to yourself

Today’s post is a case study of why you might avoid PFIC classification if you rent land to your own business. This post also shows why 50-50 joint ventures are rather dangerous.

The setup

Suppose you run into this setup:

You, a US person, go into business with an unrelated nonresident alien. You take 40% of the share of an operating company, and your partner takes 60%. You need to buy land for the business to use, but your investors or creditors demand that you hold the land in a separate company. So you and your partner create a separate land company and buy the land using the land company.

... continue reading
PFIC and CFCs
March 23, 2017 - Haoshen Zhong

Your Stock Options in a PFIC

Getting a stock option from a PFIC

Here is a question from an email:

I am employee of a PFIC. My employer issued some stock options to me as part of my compensation. Do I have a PFIC problem?

This post describes why you cannot avoid passive foreign investment company (PFIC) taxes by holding onto an option or selling the option directly. But you may want to hold onto the option to reduce annual reporting requirements.

The option is an issue because of attribution rules

A passive foreign investment company (PFIC) is a special subcategory of foreign corporations. US shareholders of a PFIC are subject to punitive tax rules, so US persons want to avoid owning shares of a PFIC.... continue reading

PFIC and CFCs