Tax Perils of Passive Foreign Investment Companies for U.S. Shareholders: Reporting Obligations, Planning

U.S. taxpayers may be subject to unexpected federal income tax and reporting requirements if they are shareholders of a PFIC. Tax counsel, advisers, and taxpayers must grasp key tax provisions and planning techniques to limit or avoid unintended tax liability.

The PFIC regime imposes a set of U.S. tax rules that are among the most demanding in all of the Internal Revenue Code. The PFIC rules expose U.S. taxpayers owning stock in PFICs to an ordinary income and accrued interest regime that is complicated and expensive. Although the PFIC regime aims to prevent U.S. persons from deferring U.S. taxation on passive investments held through foreign companies, taxpayers may avoid the ordinary income and interest treatment by electing to be taxed currently on income from their PFIC holdings.

The primary mechanism for opting out of the PFIC regime is the election to treat the PFIC as a QEF. This election allows U.S. taxpayers to preserve capital gain treatment for their PFIC gains and to avoid interest accrual by paying tax currently on their pro-rata share of income and gain from the QEF.

This additional election--which involves gain recognition--is reported on Form 8621. Alternatively, taxpayers holding PFIC stock may be able to make a mark-to-market election for their PFIC stock, reporting proceeds from deemed sales annually as ordinary income, but only if the PFIC stock is publicly traded.

Listen as our expert panel goes beyond the basics to provide a thorough discussion of the applicability of PFIC rules, determining foreign company status, the implications of new tax law provisions, QEF elections, and other planning techniques to avoid the PFIC regime.

1. Overview of PFIC rules and critical provisions
2. Identifying assets that are subject to PFIC rules
3. Mechanisms to remove the PFIC "taint"
4. Impact of new tax law provisions
5. Best practices in allocating and reporting PFIC income

The panel will review these and other relevant issues:

• How the new tax law provisions impact PFIC rules
• Identifying assets that qualify as PFIC holdings
• Exceptions to the PFIC rules
• Ensuring effective allocation of income and compliance with PFIC reporting obligations
• Planning techniques available to limit or avoid the application of PFIC rules

Learning Objectives

After completing this course, you will be able to:

• Understand the application of PFIC rules to U.S. taxpayers
• Recognize the impact of new tax law provisions impacting PFIC rules and reporting obligations
• Determine scenarios in which to make a QEF election
• Identify the elections necessary to make a QEF election in a year after asset acquisition
• Recognize the current year tax impact of elections to remove PFIC taint from foreign investments

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience at mid-level within the organization, preparing complex tax forms and schedules; supervisory authority over other preparers/accountants. Knowledge and understanding of passive foreign investment company (PFIC) rules, including taxation of PFICs and filing requirements.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.