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October 5, 2017 - Haoshen Zhong

Foreign Tax Credit on Sale of a PFIC

This is a question that sometimes comes in an email:

I am a US citizen living abroad. I sold a PFIC. I paid foreign tax on the gain. Can I use the foreign tax as a foreign tax credit?

We do not have a definitive answer to this question, because there is very little guidance from the IRS on this matter. This post discusses the positions you can take and our preferred approach.

What are PFICs?

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

PFIC and CFCs
September 21, 2017 - Haoshen Zhong

Customer Deposit in a Chinese Investment Firm under the PFIC Asset Test

Cash held for customers

This is a war story from client work:

I own shares of a Chinese investment firm. The firm’s balance sheet, produced under Chinese accounting standards, shows cash of $X, with line below that said $Y out of $X is customer deposits. The total asset on the balance sheet showed $X to be the cash included in the sum. Should I include $X or $X-Y of cash for the asset test for PFICs?

Today’s post is a bit of a followup to a previous post about assets held in trust. It is not about assets held in trust, but it applies the principles outlined in that post in a concrete example.... continue reading

PFIC and CFCs
September 7, 2017 - Haoshen Zhong

Unit Trust in Stapled Security Arrangements

This is a question sent to us through email:

I invested in Australian stapled securities. Do I have a PFIC problem?

In this post, I will introduce the concept of stapled securities and go through the questions we ask to determine whether the US person holds a PFIC. Because we have limited space, I am going to assume that the particular stapled security we are discussing is used to hold real estate investments.

What are stapled securities?

It is a type of securities arrangement in Australia.

You have a unit trust that holds property. The unit trust hires a limited company to manage the property.... continue reading

PFIC and CFCs
August 24, 2017 - Haoshen Zhong

Asset Held in Trust for the PFIC Asset Test

Asset held in trust and the PFIC asset test

This is a war story from client work:

I own shares of a private company. It is the trustee of a family trust. Should I include the trust’s assets when I determine whether the private company is a PFIC?

In this post, I will discuss the approach we use to this type of question and show why the way the arrangement works in the foreign country is important to answer this question.

What are PFICs?

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

PFIC and CFCs
August 10, 2017 - Haoshen Zhong

Gain from a PFIC Bought and Sold in the Same Year

This is a question we received through an email:

I bought shares in a foreign mutual fund and sold it in the same year. I made a gain on the sale. I am sure the mutual fund is a PFIC. Do I have any excess distributions to report?

In this post, I will discuss why the gain probably is an excess distribution.

What are PFICs?

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

PFIC and CFCs