Instructions For Form 8621 - 2016 (Page 2 of 14) in pdf

the taxable year are assets that produce

(Election B) until the QEF election is

received during the first tax year of the

passive income or that are held for the

terminated.

shareholder's holding period of the

production of passive income.

If the QEF election is not made with

stock will be treated as an excess

respect to the first year of the

distribution.

Basis for measuring assets. When

shareholder’s holding period in the

The excess distribution is determined

determining PFIC status using the asset

PFIC, the shareholder may be able to

on a per share basis and is allocated to

test, a foreign corporation may use

make a deemed sale election (Election

each day in the shareholder's holding

adjusted basis if:

D) or deemed dividend election

period of the stock. See section 1291(b)

(Election E) (if eligible). If the

1. The corporation is not publicly

(3) for adjustments that are made when

shareholder properly makes a deemed

traded for the taxable year and

determining if a distribution is an excess

sale election or deemed dividend

distribution.

2. The corporation is (a) a controlled

election in connection with its QEF

foreign corporation within the meaning

Portions of an excess distribution are

election, then the PFIC will become a

of section 957 (CFC) or (b) makes an

treated differently. The portions

pedigreed QEF (as defined in

election to use adjusted basis.

allocated to the days in the current tax

Regulation section 1.1291-9(j)(2)(ii))

year and the shareholder's tax years in

Publicly traded corporations must

with respect to the shareholder.

its holding period before the foreign

use fair market value when determining

corporation qualified as a PFIC

Note. A shareholder that receives a

PFIC status using the asset test.

(pre-PFIC years) are taxed as ordinary

distribution from an unpedigreed QEF

Look-thru rule. When determining if a

income. The portions allocated to the

(defined in Regulations section

foreign corporation that owns at least

days in the shareholder's tax years

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

25% (by value) of another corporation is

(other than the current tax year) in its

rules applicable to a shareholder of a

a PFIC, the foreign corporation is

holding period when the foreign

section 1291 fund (see below).

treated as if it held a proportionate share

corporation was a PFIC are not included

Basis adjustments. A shareholder's

of the assets and received directly its

in income, but are subject to the

basis in the stock of a QEF is increased

proportionate share of the income of the

separate tax and interest charge set

by the earnings included in gross

25%-or-more owned corporation.

forth in section 1291(c).

income and decreased by a distribution

See the instructions for Part V, later.

CFC overlap rule. A 10% U.S.

from the QEF to the extent of previously

shareholder (defined in section 951(b))

taxed amounts.

Exempt organizations. If a

that includes in income its pro rata share

shareholder of a PFIC is a tax exempt

Section 1291 Fund

of subpart F income for stock of a CFC

organization, the rules of section 1291

that is also a PFIC generally will not be

A PFIC is a section 1291 fund if:

will apply only if a dividend from the

subject to the PFIC provisions for the

PFIC would be taxable to the

1. The shareholder did not elect to

same stock during the qualified portion

shareholder under subchapter F.

treat the PFIC as a QEF or make a

of the shareholder's holding period of

mark-to-market election with respect to

Coordination of mark-to-market re-

the stock in the PFIC. This exception

the PFIC or

gimes with section 1291.

does not apply to option holders. For

2. The PFIC is an unpedigreed QEF

Shareholders of a PFIC that is marked

more information, see section 1297(d).

(as defined in Regulations section

to market under section 1296 or any

Note. The attribution rules of section

1.1291-9(j)(2)(iii)).

other Code provision may be subject to

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

section 1291 in the first taxable year in

even if the foreign corporation is not

which the shareholder marks to market

Tax Consequences for

treated as a PFIC with respect to the

the PFIC stock. See Regulations

Shareholders of a Section 1291

shareholder under section 1297(d).

sections 1.1291-1(c)(4) and 1.1296-1(i).

Fund

Qualified Electing Fund (QEF)

Mark-to-Market Election

Shareholders of a section 1291 fund are

Election

A U.S. shareholder of a PFIC may elect

subject to special rules when they

to mark-to-market the PFIC stock under

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

receive an excess distribution (defined

section 1296 if the stock is “marketable

below) from, or recognize gain on the

a direct or indirect shareholder of the

stock.” See the instructions for Election

sale or disposition of the stock of, a

PFIC elects (under section 1295) to

C later for information on making this

section 1291 fund. A distribution may be

treat the PFIC as a QEF. See the

election.

partly or wholly an excess distribution.

instructions for Election A later for

The entire amount of gain from the

information on making this election.

Marketable stock. Marketable stock

disposition of a section 1291 fund is

is:

treated as an excess distribution.

Tax Consequences for

PFIC stock that is regularly traded (as

defined in Regulations section

Shareholders of a QEF

Excess distributions. An excess

1.1296-2(b)) on:

distribution is the part of the distribution

A shareholder of a QEF must

received from a section 1291 fund in the

1. A national securities exchange

annually include in gross income as

current tax year that is greater than

that is registered with the Securities and

ordinary income its pro rata share of the

125% of the average distributions

Exchange Commission (SEC),

ordinary earnings and as long-term

received in respect of such stock by the

capital gain its pro rata share of the net

2. The national market system

shareholder during the 3 preceding tax

capital gain of the QEF.

established under section 11A of the

years (or, if shorter, the portion of the

The shareholder may elect to extend

Securities Exchange Act of 1934, or

shareholder's holding period before the

the time for payment of tax on its share

3. A foreign securities exchange

current tax year). No part of a

of the undistributed earnings of the QEF

that is regulated or supervised by a

distribution received or deemed

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Instructions For Form 8621 - 2016 Page 2

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