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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
November 30, 2017 - Haoshen Zhong

Foreign Mutual Funds Investing in the US Are Still PFICs

Foreign mutual funds investing in the US

This is a question from an email:

I have a foreign mutual fund that invests in stocks of US corporations. Is the mutual fund a PFIC?

In this post, I will discuss why this mutual fund is a PFIC. Here is the tl;dr version: There is no exception in the PFIC rules for invests in the US.

What are PFICs?

Passive foreign investment company (PFIC) is a classification under US tax law. When a US person receives a distribution from a PFIC or sells shares in a PFIC for a gain, special rules apply.... continue reading

PFIC and CFCs
November 16, 2017 - Haoshen Zhong

Pre-1997 Unit Trust Funds

Pre-1997 unit trusts

This scenario is loosely based on some analysis we did for a client:

I bought 10% of units in a private unit trust in a foreign country back in 1990. All other unit holders are nonresident aliens. We could transfer the units by giving notice to the trust without seeking permission. All unit holders are personally liable for the debts of the trust in proportion to their unit holding. It invested in stocks and bonds. It and its nonresident alien shareholders never filed anything in the US tax system.

In this post, I will discuss why this unit trust was a PFIC when it was bought and why it underwent a deemed liquidation in 1997.... continue reading

PFIC and CFCs
November 2, 2017 - Haoshen Zhong

Distributions from a PFIC under a QEF Election

This is a question we received through an email:

I own stock of a PFIC. I made a qualified electing fund election for the PFIC stock. The QEF received a distribution of qualified dividends during the year. Later, I sold the QEF for a loss. Can I use the loss to offset income from the QEF?

In this post, I will introduce how QEF works and why the loss from the sale of the stock cannot be used to offset the passthrough of income from the QEF.

What are PFICs?

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

PFIC and CFCs
October 17, 2017 - Haoshen Zhong

Cash Distribution from a Mark-to-Market PFIC Stock

Distributions from a PFIC under a mark-to-market election

This is a question we received through an email:

I own stock of a PFIC. I made a mark-to-market election for the PFIC stock. The PFIC made a distribution of cash during the year. How is the distribution taxed?

In this post, I will discuss why the distribution is mostly treated like a distribution from a normal corporation (with the exception that the dividend never can be a qualified dividend).

What are PFICs?

Passive foreign investment company (PFIC) is a specific classification under US tax law. It applies to a foreign corporation if it satisfies either:

  • An income test: 75% or more of its gross income is passive income, or
  • An asset test: 50% or more of its gross assets produce passive income or are held for the production of passive income.
... continue reading
PFIC and CFCs