I have to say that your choice of music made this even more pleasurable. ( I am a corporate tax attorney, who is a classically trained opera singer; this just connected both sides of my brain). Great video.
Is there any conceivable situation in which you would recommend that a QEF or mark-to-market election NOT be made, leaving the U.S. shareholder with the tax and interest regime?
Yes, sort of. First, where there is an undetected PFIC and the value of the shares is expected to decline, it may be best to wait to make a pair of elections (QEF and deemed sale) until the value gets below basis or as low as it is expected to hit. This minimizes the adverse effect of the deemed sale election. This situation happened a lot in 2009-2011 following market declines. A second occurred to me at one time, but I never encountered it and forgot the details.
A U.S. person is any of the following: a citizen of the USA, an individual resident in the U.S. (see the rather complex regs under 26 USC 7701(b)), a corporation organized under the laws of one of the 50 states or DC, or a partnership organized under the laws of one of the 50 states or DC. Note that a U.S. LLC may be treated as disregarded, a partnership, or a corporation for U.S. tax law, and thus you must first determine how it is treated to determine residence. Your question about a 1040NR filer is putting the conclusion as to residence before the determination of residence. See paragraph above. Note that an individual may change his or her residence status, and thus whether PFIC applies can change for someone who is not a U.S. citizen.
It's a bit more complex. Form 8621 is required in all cases if QEF treatment is elected (which I tend to strongly recommend) or mark to market is elected. It is required to make those election. It is required if for any individual, estate, or C corporation if his/her/its aggregate value of all direct and indirect interests in all PFICs exceeds $25,000. Indirect includes holdings through any flow-through (partnership, S corp, trust). For more, see sfoxcpa.com/documents/PFIC-Pitfalls.pdf .
@@internationaltax7708 so a US person living abroad can own Pfic like ETFs without a problem if they stay below $25,000? How extensive is the paperwork for QEF or Mark-to-Market? How many hours would a tax advisor spend on doing the paperwork for let’s say an ETF like MSCI All Country World IMI? What if a US person was saving money in a foreign private pension with ETFsat its core? How would you declare this? Or would you even have to declare this pension as it’s not the USA person who is putting money into ETFs, but the insurance company? As in: The US person would entrust the insurance with their money, tell them what ETF to invest in and the insurance would invest accordingly in the insurance’s portfolio?
Thanks for the good question, which another CPA also asked recently. A C corporation owning more than 10% of the shares of a PFIC can get a FTC up to 2017 for foreign taxes paid by the PFIC. Individuals are not eligible for this credit. See my video on the Deemed Paid Credit under §902. A few countries impose tax on sale of shares of a company organized in that country, even if the sale is by nonresidents. Those taxes are eligible for foreign tax credit. However, the income may not be foreign source income. Source of income from sale of property other than inventory is (with some other exceptions) based on where the taxpayer is resident. Thus, if a person is living in the U.S. and sells shares of a foreign corporation, the source of gain (including PFIC gains) is U.S. If the person has no other foreign source income, the limitation on FTC is zero. Remember, though, that foreign tax credits in excess of the limitation carry over for potential use in another year. Also, I have seen situations where foreign tax was paid incorrectly, and the foreign law did not impose tax on nonresidents. In such situations, the person should apply for a refund of the foreign tax.
Thank you Sir for educating on this complex topic, it really helped. Is reporting annual gain in market value (i.e. unrealized gain) of the PFIC share(with Mark to market election) as ordinary income on the “other income” in line 21 of IRS Form 1040 tax returns or any other form apart from form 8621?
I have to say that your choice of music made this even more pleasurable. ( I am a corporate tax attorney, who is a classically trained opera singer; this just connected both sides of my brain). Great video.
Choosing the QEF filling would lead to a tax rate of 0% - 20% ( long term capital gains ) ?
Can you share ORG structure to file 1120 and 1118 forms
I have no idea what you are asking. 1120 and 1118 are both for U.S. corporations. PFIC relates to U.S. shareholders of foreign corporations.
I want to know which type of entities are included in filling 1118? Structure and ownership chain@@internationaltax7708
Is there a minimal balance for reporting on form 8621 if there were no distributions? It seems $5,000 is the minimum,.
see reply to question from mahesh r, below
Is there any conceivable situation in which you would recommend that a QEF or mark-to-market election NOT be made, leaving the U.S. shareholder with the tax and interest regime?
Yes, sort of. First, where there is an undetected PFIC and the value of the shares is expected to decline, it may be best to wait to make a pair of elections (QEF and deemed sale) until the value gets below basis or as low as it is expected to hit. This minimizes the adverse effect of the deemed sale election. This situation happened a lot in 2009-2011 following market declines. A second occurred to me at one time, but I never encountered it and forgot the details.
What's the definition of a "US person" as used in this video? Does a 1040NR filer need to be worried about PFICs they might hold?
A U.S. person is any of the following: a citizen of the USA, an individual resident in the U.S. (see the rather complex regs under 26 USC 7701(b)), a corporation organized under the laws of one of the 50 states or DC, or a partnership organized under the laws of one of the 50 states or DC. Note that a U.S. LLC may be treated as disregarded, a partnership, or a corporation for U.S. tax law, and thus you must first determine how it is treated to determine residence.
Your question about a 1040NR filer is putting the conclusion as to residence before the determination of residence. See paragraph above.
Note that an individual may change his or her residence status, and thus whether PFIC applies can change for someone who is not a U.S. citizen.
for 2019 filing, If the total value of PFIC is less than 25000 USD do we need to submit 8621?
It's a bit more complex. Form 8621 is required in all cases if QEF treatment is elected (which I tend to strongly recommend) or mark to market is elected. It is required to make those election. It is required if for any individual, estate, or C corporation if his/her/its aggregate value of all direct and indirect interests in all PFICs exceeds $25,000. Indirect includes holdings through any flow-through (partnership, S corp, trust). For more, see sfoxcpa.com/documents/PFIC-Pitfalls.pdf .
@@internationaltax7708 so a US person living abroad can own Pfic like ETFs without a problem if they stay below $25,000?
How extensive is the paperwork for QEF or Mark-to-Market? How many hours would a tax advisor spend on doing the paperwork for let’s say an ETF like MSCI All Country World IMI?
What if a US person was saving money in a foreign private pension with ETFsat its core? How would you declare this? Or would you even have to declare this pension as it’s not the USA person who is putting money into ETFs, but the insurance company? As in: The US person would entrust the insurance with their money, tell them what ETF to invest in and the insurance would invest accordingly in the insurance’s portfolio?
@@brewnail7979 You need to get a CPA. I'm not accepting new clients.
Can you get a foreign tax credit on the disposition of the PFIC?
Thanks for the good question, which another CPA also asked recently. A C corporation owning more than 10% of the shares of a PFIC can get a FTC up to 2017 for foreign taxes paid by the PFIC. Individuals are not eligible for this credit. See my video on the Deemed Paid Credit under §902. A few countries impose tax on sale of shares of a company organized in that country, even if the sale is by nonresidents. Those taxes are eligible for foreign tax credit. However, the income may not be foreign source income. Source of income from sale of property other than inventory is (with some other exceptions) based on where the taxpayer is resident. Thus, if a person is living in the U.S. and sells shares of a foreign corporation, the source of gain (including PFIC gains) is U.S. If the person has no other foreign source income, the limitation on FTC is zero. Remember, though, that foreign tax credits in excess of the limitation carry over for potential use in another year. Also, I have seen situations where foreign tax was paid incorrectly, and the foreign law did not impose tax on nonresidents. In such situations, the person should apply for a refund of the foreign tax.
Thank you so much... Very helpful
Thank you Sir for educating on this complex topic, it really helped.
Is reporting annual gain in market value (i.e. unrealized gain) of the PFIC share(with Mark to market election) as ordinary income on the “other income” in line 21 of IRS Form 1040 tax returns or any other form apart from form 8621?
Reported as other income. What if one redeems the profit before Dec 31 making the year end value less hence less taxes ?