Foreign funds can create U.S. tax and reporting obligations, even if you have held them for years. Learn what to check, what records to gather and which questions to ask before making changes.
A Passive Foreign Investment Company is a foreign corporation that meets either the passive-income test or the passive-asset test, subject to applicable rules and exceptions. Generally, that means at least 75% of its gross income is passive, or at least 50% of its average assets produce, or are held to produce, passive income.
PFIC exposure often comes from ordinary local investing. Reviewing it early gives you more options.
Form 8621 is generally filed for each PFIC, and can be required annually without a sale or distribution, unless an exception applies.
Without an election, gains and excess distributions allocated to earlier PFIC years are taxed at the highest rate for those years, plus interest.
Purchase dates, costs, distributions and fund statements are needed for an accurate review. Starting early helps.
PFIC questions need coordinated tax and investment expertise. A qualified U.S. international tax professional can assess reporting and elections, while an appropriately authorized investment advisor can help evaluate portfolio decisions.
We provide education and, on request, introductions. We do not prepare returns, make elections or provide individualized advice.
A short, ordered way to move from uncertain to informed.
Note every non-U.S. fund and foreign company share you own, with its legal name, ISIN and where it is domiciled. Treat domicile as a screening clue.
Collect purchase dates, costs, distributions, year-end values and any annual statements the fund provides. Note any Forms 8621 already filed.
Ask a qualified U.S. international tax professional about reporting and elections before buying, selling or switching funds.
Understand the U.S. tax implications of foreign funds and review the investments you hold abroad.
An 11-page practical guide covering PFIC identification, tax treatments, reporting questions and the records to gather for a professional review. Includes a worksheet for your existing holdings.
Written for Americans already living abroad. Start wherever your question is.
How to screen your foreign funds and shares using the income and asset tests, with domicile as a starting clue.
Read the guide →ReportingWhen the form is required, the main exceptions, and how it is filed with your return.
Read the guide →Tax treatmentHow the default rules allocate gains across your holding period, and how the two elections differ.
Read the guide →Planning a moveFor those still planning a move: brokerage accounts, retirement accounts and foreign funds.
Read the guide →A Passive Foreign Investment Company is a foreign (non-U.S.) corporation that meets either the income test or the asset test, subject to applicable rules and exceptions. Generally, that means at least 75% of its gross income is passive, or at least 50% of its average assets produce, or are held to produce, passive income. Foreign mutual funds and ETFs are common examples.
The PFIC rules apply to U.S. persons for federal tax purposes, which includes U.S. citizens and resident aliens such as green card holders, wherever they live. Holding a U.S. account does not, by itself, make someone a U.S. person. If your status is uncertain, have it confirmed first.
Form 8621 is the IRS form used to report PFIC holdings and make certain elections. It can be required annually even without a sale or distribution, though exceptions exist, including a limited value-based exception and certain treaty-related pension exceptions. It is generally filed with your return by its due date, including extensions.
Under the default rules, gains on sale and excess distributions are allocated across your holding period. Amounts allocated to prior PFIC years are generally taxed at the highest rate in effect for each of those years, plus interest. Amounts allocated to the current year and pre-PFIC years are generally ordinary income. QEF and mark-to-market elections can change this, subject to their own requirements.
Not without analysis first. A disposal is itself taxable under the PFIC rules, and the outcome depends on your holding period, any elections and your local tax position. It is a decision to review with qualified professionals, not a guaranteed way out.
These are illustrations, not real clients or outcomes.
A U.S. citizen who has lived in Europe for a decade holds several local index funds bought through a bank and has never filed Form 8621.
A green card holder working in Asia receives a workplace savings plan invested in local funds and is unsure how it is treated.
A dual national wants to simplify a foreign portfolio and is considering selling, without yet knowing the U.S. tax effect.
On request, we can introduce you to independent professionals through American Expat Advisors. Any advice comes from them, not from this website.
Request an introductionThis site is educational. We do not prepare tax returns, make elections, provide individualized tax, legal or investment advice, or manage assets.