Quick Answer: What Is QEF?

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..

What is sub F income?

The income of a CFC that is currently taxable to its U.S. shareholders under the Subpart F rules is referred to as “Subpart F income.” Under I.R.C. … In general, it consists of movable income. For example, a major category of Subpart F income is Foreign Base Company Income (FBCI), as defined under I.R.C.

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.

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…•

Is foreign life insurance a PFIC?

If the policy is considered a life insurance contract under the “applicable law”. … The U.S income tax and estate tax consequences of a non-compliant policy, If the U.S. owner of the contract is treated as owning a “passive foreign investment company” (PFIC) for U.S. income tax purposes, and.

When can you make a QEF election?

QEF election: The QEF election must be made by the extended due date of the taxpayer’s federal income tax return. To make the initial QEF election for an asset, the taxpayer must file Form 8621 with his or her tax return and check the “Election to Treat the PFIC as a QEF” box.

What is the QEF election?

The QEF or Qualified Electing Fund election under §1295 is optional method of taxation available for certain PFICs. This election most closely mirrors the US taxation of US mutual funds and allows for capital gains treatment of some of the income as long as any prior §1291 gain has been dealt with.

What is a pedigreed QEF?

year of ownership, the PFIC is called a pedigreed QEF. Any investment for which the election was made in a year other than the first year of ownership is called a “non-pedigreed”QEF. Pedigreed status can also be achieved by purging any prior Code Sec.

Who can make a QEF election?

Qualified Electing Fund (QEF) Election A PFIC is a QEF if a U.S. person who is a direct or indirect shareholder of the PFIC elects (under section 1295(b)) to treat the PFIC as a QEF and complies with the requirements described in section 1295(a)(2).

Do I need to file Form 8621?

Together with your tax return, you need to file Form 8621. This applies for each separate PFIC you are a shareholder if you: receive direct or indirect distributions from a PFIC. recognize a gain on a direct or indirect disposition of PFIC stock.

Are ETFs PFICs?

Perhaps the most common and most significant investment mistake made by Americans abroad is to buy a foreign mutual fund (including ETFs or other types of non-U.S.-based funds). The U.S. tax code categorizes non-U.S. registered mutual funds as Passive Foreign Investment Companies (PFICs).

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 Pfic?

Key Takeaways. A foreign corporation is a deemed passive foreign investment company (PFIC) if 75% or more of its gross income is from non-business operational activities (the income test), or at least 50% of its average percentage of assets is held for the production of passive income (the asset test). 1

What is a Section 1291 Fund?

§ 1291 is the default method of taxation for PFICs. The taxpayer may choose to impose § 1291 tax on phantom income or income that has not been received yet. Any income or gain allocated to years before 1987 is not PFIC income.

How do I find Pfic?

So how do I know if I have a PFIC? The two criteria given in the PFIC definition in Section 1297(a) are known as the “income test” and the “asset test”. 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.