How Passive Foreign Investment Corporation (PFIC) Tax Rules Affect Most Americans Abroad

Our paper outlines major takeaways for U.S. taxpayers who have invested in a Passive Foreign Investment Corporation (PFIC), namely:

• Tax treatment of PFICs is highly punitive compared to U.S.-domiciled funds. It explains the filing requirements for shareholders and details three tax elections for reporting PFIC information, including:

1. The Qualified Electing Fund (QEF) Election
2. The Mark-to-Market Election
3. The Default, or “Do Nothing,” Approach

• Beyond high tax rates, the stringent tax reporting requirements surrounding PFICs make it time-consuming and expensive to properly comply.
• One of the most effective ways to mitigate the negative financial consequences of PFIC ownership is to invest using individual securities.