On December 31, 2013, Temporary Treasury Regulations under Section 1298(f) of the Code were published. Under these rules, for the calendar years 2013 and thereafter, direct and indirect U.S. shareholders who are the first U.S. persons in a chain of ownership with respect to a passive foreign investment company (“PFIC”) must annually file a Form 8621 for each PFIC owned. Ownership of PFIC stock through another U.S. person may also trigger reporting requirements in circumstances where the U.S. shareholder is required to include an amount in income with respect to the PFIC. Certain exceptions may apply for U.S. shareholders who have in effect qualified electing fund (“QEF”) or mark-to-market (“MTM”) elections, or whose holdings fall below certain value thresholds.
PFIC shareholders who were required to file Form 8621 under the previous rules or other sections of the Code must continue to file.
Under the new rules, many additional U.S. taxpayers may be required to file Form 8621:
- The first U.S. person in a chain of ownership with respect to PFIC stock who owns such stock through a foreign investment vehicle, such as partnerships, hedge funds, certain brokerage accounts, and retirement funds.
- A U.S. person treated as the owner of a domestic or foreign grantor trust that directly or indirectly owns stock of a PFIC.
- A U.S. person who is the beneficiary of a foreign estate or nongrantor trust which directly or indirectly owns PFIC stock.
- A U.S. person who indirectly owns an interest in PFIC stock through a U.S. investment vehicle, U.S. estate, or U.S. nongrantor trust, if the U.S. person is treated as receiving an excess distribution (or recognizing gain that is treated as an excess distribution) with respect to the PFIC. Exceptions may apply if the U.S. person has a valid QEF or MTM election in effect and the first U.S. person in the chain of ownership (i.e., the investment vehicle, estate, or nongrantor trust) complies with the filing requirement.
Absent a showing of reasonable cause, if a U.S. shareholder is required but fails to file Form 8621, the statute of limitations on the shareholder’s U.S. federal income tax return will not begin to run.
To avoid duplicative reporting of foreign assets, a U.S. shareholder of PFIC stock is not required to report a PFIC under Section 6038D (Information Reporting With Respect to Foreign Financial Assets) if the person reports the PFIC on a timely filed From 8621 and the person’s report under Section 6038D (on Form 8938) indicates, as provided on the form, that the person complied with its Form 8621 filing requirement with respect to the PFIC.