Question: What Is Considered A PFIC?

What income is subject to Gilti?

GILTI is calculated as the total active income earned by a US firm’s foreign affiliates that exceeds 10 percent of the firm’s depreciable tangible property..

What is a QEF?

A QEF, or Qualified Electing Fund, is a PFIC for which you have made a special election. The tax treatment of a QEF is better than the other two ways of taxing PFICs: the excess distribution rules of I.R.C.

Is a mutual fund a PFIC?

Under U.S. tax law, Canadian mutual fund trusts and mutual fund corporations are generally considered PFICs, which are subject to strict rules designed to limit U.S. taxpayers’ ability to defer tax through foreign (non-U.S.) investments.

What is a PFIC for US tax purposes?

The passive foreign investment company (PFIC) regime aims to discourage US persons from forming a foreign corporation and using that company to invest in primarily passive investments, thereby attempting to shift income out of the US federal tax net.

How is a PFIC taxed?

All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec. 1291(a)(1)(B)).

What is passive company?

Passive companies don’t have a product or service. Instead, they make money from rental property or other investments, such as stocks or book royalties. … Opportunity Real Estate Holdings would be considered a passive business.

Can a PFIC be a CFC?

PFIC/CFC overlap A CFC earning Subpart F income generally will meet the criteria to be considered a PFIC as well. … The shareholder would be subject to the excess distribution rules, but the shares would then be eligible for the PFIC exception going forward.

Who can make a QEF election?

Each year, a U.S. person with an ownership interest in a PFIC must report each PFIC holding on a separate IRS Form 8621. On this form, taxpayers may, if they choose, make a Mark-to-Market election or a Qualified Electing Fund (QEF) election if these elections are available.

How do I avoid PFIC status?

A U.S. shareholder can avoid the PFIC interest charge and the conversion of capital gains into ordinary income by timely filing a QEF election.

Is a foreign bank a PFIC?

The 1986 law exempted foreign banks and securities dealers that were licensed in the United States from being classified as PFICs. The new regulations deal with the status of foreign banks, financial institutions and securities dealers that are licensed to practice in their own countries but not in the United States.

What is PFIC Annual Information Statement?

The PFIC Annual Information Statement contains information to enable you, should you so choose based on the advice of your tax advisors in light of your personal tax circumstances, to elect to treat the Golden Queen entity as a qualified electing fund (“QEF”).

What is passive money?

Passive income is earnings derived from a rental property, limited partnership, or other enterprise in which a person is not actively involved. As with active income, passive income is usually taxable. However, it is often treated differently by the Internal Revenue Service (IRS).

How is excess Pfic calculated?

To do the math and compute total excess distributions:Figure out the total distributions received from the PFIC during the current year.Add up the total distributions received from the PFIC during the three prior years, divide by three, then multiply that by 1.25.More items…•

How do you identify a PFIC?

The income test tells you to determine if 75 percent or more of the gross income of the corporation is passive. If it is, the corporation is a PFIC. The asset test tells you to determine if 50 percent or more of the corporation’s assets are passive or are held for the production of passive income.

Are ETFs considered PFICs?

As these securities primarily hold investments that are passive in nature they are generally considered to be PFICs. Exchange Trade Funds (ETFs) listed on a Canadian stock exchange are generally PFICs; however, ETFs listed on a U.S. stock exchange that are set up as U.S. domestic entities are not.

Is a holding company a PFIC?

I will assume Holding Co is taxed as a corporation under US tax law. If it is not taxed as a corporation, it cannot be a PFIC. I will further assume that Holding Co has bought shares in two businesses: Business A, of which it owns 10% of the shares, and Business B, of which it owns 40% of the shares.

Do I have to file Form 8621?

As the US grantor who invests in any foreign mutual funds (PFICs), you will have to file a Form 8621. You are not required to file Form 8621 when you are : … On an excess distribution received from the PFIC during the shareholder’s tax year. haven’t made a QEF election with respect to the PFIC.