Instructions For Form 8621 (Rev.december 2004) printable pdf download

Department of the Treasury

Instructions for Form 8621

Internal Revenue Service

(Rev. December 2004)

Return by a Shareholder of a Passive Foreign Investment Company or Qualified

Electing Fund

Section references are to the Internal Revenue Code unless otherwise noted.

in 3 above must file Form 8621 if the

25% (by value) of another corporation is a

What’s New

pass-through entity fails to file such form

PFIC, the foreign corporation is treated as

or the U.S. person is required to

if it held a proportionate share of the

Final regulations have been issued under

recognize any income under either

assets and received directly its

section 1296 and coordinating changes

section 1291 or section 1293.

proportionate share of the income of the

have been made to the regulations under

25%-or-more owned corporation.

sections 1291 and 1295. These new rules

Chain of ownership. If the shareholder

are reflected throughout the instructions

owns one PFIC and through that PFIC

CFC overlap rule. A 10% U.S.

owns one or more other PFICs, the

and are generally effective for tax years

shareholder (defined in section 951(b))

beginning on or after May 3, 2004. See

shareholder must either:

that includes in income its pro rata share

T.D. 9123, 2004-20 I.R.B. 907, for details.

1. File a Form 8621 for each PFIC in

of subpart F income for stock of a CFC

the chain or

that is also a PFIC, generally will not be

General Instructions

2. Complete Form 8621 for the first

subject to the PFIC provisions for the

PFIC and, in an attachment, provide the

same stock during the qualified portion of

information required on Form 8621 for

the shareholder’s holding period of the

Who Must File

each of the other PFICs in the chain.

stock in the PFIC. This exception does

Generally, a U.S. person that is a direct or

not apply to option holders. For more

indirect shareholder of a PFIC must file

information, see section 1297(e).

When and Where To File

Form 8621 for each tax year in which that

Note. The attribution rules of section

Attach Form 8621 to the shareholder’s tax

U.S. person:

•

1298(a)(2)(B) will continue to apply even

return and file both by the due date,

Recognizes gain on a direct or indirect

if the foreign corporation is not a PFIC

including extensions, of the return.

disposition of PFIC stock,

•

under the CFC overlap rule.

Receives certain direct or indirect

If you are not required to file an

distributions from a PFIC, or

income tax return or other return for the

•

Is making an election reportable in Part

tax year, file Form 8621 directly with the

Qualified Electing Fund (QEF)

I of the form.

Internal Revenue Service Center, P.O.

A PFIC is a QEF if the U.S. person who is

Box 21086, Philadelphia, PA 19114.

A separate Form 8621 must be filed

a direct or indirect shareholder of the

for each PFIC in which stock is held. See

Definitions and Special

PFIC elects (under section 1295) to treat

Chain of ownership below for specific

the PFIC as a QEF. See the instructions

filing requirements.

Rules

for Election A on page 2 for information

Indirect shareholder. Generally, a U.S.

on making this election.

person is an indirect shareholder of a

Passive Foreign Investment

PFIC if it is:

Company (PFIC)

Tax Consequences for

1. A direct or indirect owner of a

Shareholders of a QEF

A foreign corporation is a PFIC if it meets

pass-through entity that is a direct or

•

either the income or asset test described

A shareholder of a QEF must annually

indirect shareholder of a PFIC,

below.

include in gross income as ordinary

2. A shareholder of a PFIC that is a

1. Income test. 75% or more of the

income its pro rata share of the ordinary

shareholder of another PFIC, or

earnings and as long-term capital gain the

corporation’s gross income for its taxable

3. A 50%-or-more shareholder of a

net capital gain of the QEF.

year is passive income (as defined in

foreign corporation that is not a PFIC and

•

section 1297(b)).

The shareholder may elect to extend

that directly or indirectly owns stock of a

2. Asset test. At least 50% of the

the time for payment of tax on its share of

PFIC.

average percentage of assets

the undistributed earnings of the QEF

Interest holder of pass-through

(determined under section 1297(f)) held

(Election D) until the QEF election is

by the foreign corporation during the

terminated.

entities. The following interest holders

•

taxable year are assets that produce

must file Form 8621 under the

The shareholder may make a deemed

circumstances described above:

passive income or that are held for the

sale election (Election B) or a deemed

production of passive income.

dividend election (Election C) to purge the

1. A U.S. person that is an interest

section 1291 fund years from its holding

holder of a foreign pass-through entity

Basis for measuring assets. When

period.

that is a direct or indirect shareholder of a

determining PFIC status using the asset

PFIC,

Note. A shareholder that receives a

test, a foreign corporation may use

2. A U.S. person that is considered

distribution from an unpedigreed QEF

adjusted basis if:

(under sections 671 through 679) the

(defined in Regulations section

1. The corporation is not publicly

shareholder of PFIC stock held in trust,

1.1291-9(j)(2)(iii)) is also subject to the

traded for the taxable year and

and

rules applicable to a shareholder of a

2. The corporation is (a) a CFC or (b)

3. A U.S. partnership, S corporation,

section 1291 fund (see page 2).

makes an election to use adjusted basis.

trust (other than a trust that is subject to

Basis adjustments. A shareholder’s

sections 671 through 679 for the PFIC

Publicly traded corporations must use

basis in the stock of a QEF is increased

stock), or estate that is a direct or indirect

fair market value when determining PFIC

by the earnings included in gross income

shareholder of a PFIC.

status using the asset test.

and decreased by a distribution from the

Note. U.S. persons that are interest

Look-thru rule. When determining if a

QEF to the extent of previously taxed

holders of pass-through entities described

foreign corporation that owns at least

amounts.

Cat. No. 10784P

Instructions For Form 8621 (Rev.december 2004)

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