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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

Loss From Selling a PFIC

Here is a question we often get from emails:

I own shares in an exchange traded fund. It is a PFIC. I have not made any elections for the shares. What happens if I sell it at a loss?

This post describes why the loss from the sale is most likely a capital loss.

What is a PFIC?

A passive foreign investment company (PFIC) is a special classification under US tax law. It applies to foreign corporations that meet at least 1 of 2 tests (IRC §1297(a)):

• Income test: At least 75% of the foreign corporation’s income is passive income or
• Asset test: At least 50% of the foreign corporation’s assets generate passive income or are held for generating passive income.

Liquidating Distribution From a PFIC

Liquidating distribution from a PFIC

This is a question I received in an email:

I invested in a PFIC. The PFIC decided to liquidate. It sold all its investments, paid its major liabilities, then paid most of the cash proceeds to its investors. Then, after paying miscellaneous, small debts and winding up its business, it distributed the remainder of its cash to the investors. I lost money on the investment. Do I have to pay PFIC tax on the distributions?

This post describes why both the first and second distributions are treated as proceeds from the sale of the investor’s PFIC shares, and why only the gain over investment is subject to tax.... continue reading

Is My Investment in a Foreign Corporation?

This is a question we get through email and client work fairly often.

I made an investment into a foreign investment vehicle. Maybe it is a partnership rather than a PFIC?

This post is something of a sequel to this post, describing why a unit trust is likely a PFIC, despite being organized as a trust under local law. This post’s focus is on distinguishing between partnerships and corporations.

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.... continue reading

Is My Retail Super Fund a PFIC?

Is my pension fund a PFIC?

This is a question we get frequently through email:

I have a pension fund. Is that a PFIC?

Unfortunately, there is no easy answer to this question, because every country has a different pension system, and they can be classified wildly differently depending on how the country’s pension works.

For this post, I will pick on the retail Australian super fund again, because I happen to see a lot of them. This post merely illustrates one process I use to determine if there is a PFIC problem.

What is a super fund?

It is a retirement savings schemes.... continue reading