Instructions For Form 8621 - 2016 (Page 5 of 14) in pdf

annually to determine the value of a

members of the group that own stock in

for the shareholder's first taxable year to

PFIC unless the shareholder has actual

the PFIC at the time the election is

which the statement will apply. For

knowledge or reason to know based on

made or any time thereafter.

required content of the statement and

readily accessible information that the

other information, see Regulations

For more information on who may

statements do not reflect a reasonable

section 1.1295-3(c).

make the election, see Regulations

estimate of the PFIC’s value.

Consent regime. Under the

section 1.1295-1(d).

Line 5. Indicate the type of PFIC and

consent regime, a shareholder that has

the amount of any excess distribution or

not satisfied the requirements of the

When To Make the Election

gain treated as an excess distribution

protective regime may request that the

under section 1291, inclusion under

Generally, a shareholder must make the

IRS permit a retroactive election. The

election to be treated as a QEF by the

section 1293, and inclusion or

consent regime applies only if:

due date, including extensions, for filing

deduction under section 1296.

1. The shareholder reasonably

the shareholder's income tax return for

relied on tax advice of a competent and

Note. In cases in which a shareholder’s

the first taxable year to which the

qualified tax professional;

ownership interest in a PFIC is not

election will apply (the “election due

2. The interest of the U.S.

denominated in shares, the shareholder

date”). See Retroactive election below

government will not be prejudiced if the

must provide the information for lines 1

for exceptions. The foreign corporation

consent is granted;

through 4 based on its form of

will be treated as a QEF with respect to

ownership in the PFIC.

3. The shareholder requests

the shareholder for the taxable year in

consent before the PFIC status issue is

which the election is made and for each

raised on audit; and

subsequent tax year of the foreign

Part II. Elections

corporation ending with or within a

4. The shareholder satisfies the

taxable year of the shareholder for

A. Election To Treat the PFIC as

procedural requirements under

which the election is effective.

Regulations section 1.1295-3(f)(4).

a QEF (Section 1295 Election)

Retroactive election. A shareholder

For more information on making a

Who May Make the Election

may make a QEF election for a taxable

retroactive election, see Regulations

Generally, a U.S. person that owns

year after the election due date (a

section 1.1295-3.

stock in a PFIC, directly or indirectly,

retroactive election), only if:

may make Election A to treat the PFIC

The shareholder has preserved its

Special Rules

as a QEF.

right to make a retroactive election

For rules relating to the invalidation,

under the protective statement regime

Note. A separate election must be

termination, or revocation of a section

(described below) or

made for each PFIC that the

1295 election, see Regulations section

The shareholder obtains the

shareholder wants to treat as a QEF.

1295-1(i). Also see Regulations section

permission of the IRS to make a

1.1295-1(c)(2) for rules relating to the

retroactive election under the consent

Exception. A tax-exempt organization

years to which a section 1295 election

regime (described below).

that is not taxable under section 1291

applies.

may not make the election. In addition, a

Protective statement regime.

tax-exempt organization that is not

Under the protective statement regime,

How To Make the Election

taxable under section 1291 is not

a shareholder may preserve the ability

subject to a QEF election made by a

to make a retroactive election if the

For the tax year in which the section

pass-through entity.

1295 election is made, the shareholder

shareholder:

must do the following.

Chain of ownership. In a chain of

1. Reasonably believed, as of the

ownership, only the first U.S. person

due date for making the QEF election,

1. Check box A in Part II of Form

that is a direct or indirect shareholder of

that the foreign corporation was not a

8621.

the PFIC may make the election.

PFIC for its taxable year that ended

2. Complete the applicable lines of

during that year (retroactive election

Pass-through entities. A QEF

Part III. Include the information provided

year);

election made by a domestic

in the PFIC Annual Information

partnership, S corporation, or estate is

2. Filed a Protective Statement (see

Statement, the Annual Intermediary

made in the pass-through entity's

below) with respect to the foreign

Statement, or a combined statement

capacity as a shareholder of a PFIC.

corporation, applicable to the retroactive

(see below) received from the PFIC.

The entity will include the QEF earnings

election year, in which the shareholder

3. Attach Form 8621 to a timely filed

as income for the year in which the

describes the basis for its reasonable

tax return (or, if applicable, partnership

PFIC's taxable year ends. The interest

belief;

or exempt organization return).

holder in the pass-through entity takes

3. Extended, in the Protective

the income into account under the rules

For each subsequent tax year in

Statement, the periods of limitations on

applicable to inclusions of income from

which the election applies and the

the assessment of taxes under the PFIC

the pass-through entity.

corporation is treated as a QEF, the

rules for all taxable years to which the

shareholder must:

protective statement applies; and

Affiliated groups. The common parent

of an affiliated group of corporations that

1. Complete the applicable lines of

4. Complied with the other terms

joins in filing a consolidated income tax

Part III and

and conditions of the protective

return makes the QEF election for all

statements.

2. Attach Form 8621 to a timely filed

members of the affiliated group that are

tax return (or, if applicable, a

The Protective Statement must be

shareholders in the PFIC. An election by

partnership or exempt organization

attached to the shareholder's tax return

a common parent is effective for all

return).

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Instructions For Form 8621 - 2016 Page 5

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