Form 8621: Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund

scale
Form 8621, titled as Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, is filed by U.S. individuals who hold shares of a passive foreign investment company or qualified electing fund. U.S. shareholders of a Passive Foreign Investment Company or Qualified Electing Fund file Form 8621 in order to comply with U.S. laws on international taxation.

A foreign corporation is a Passive Foreign Investment Company (PFIC) if it meets the income test (75 percent or more of the company’s gross income for the taxable year is passive income), or asset test (at least 50 percent of the average percentage of assets a foreign company holds during the taxable year are assets that are producing passive income).

Form 8621 is three-pages and requires the U.S. shareholder to provide the following information:

  • Statement of annual information. This part of Form 8621 requires information with respect to all shares of the PFIC held by the U.S. shareholder filing Form 8621. It requires information on the classes of shares of the PFIC, date the shares were acquired, and the value of the shares, as well as other information.
  • Elections. The U.S. shareholder has the option to make certain elections, which may be beneficial to avoid certain negative tax consequences, on Form 8621.
  • Income from a Qualified Electing Fund (QEF). U.S. shareholders who elect to have the PFIC taxed as a Qualifying Electing Fund (QEF) complete Part III with the income details of the QEF for the reporting period.
  • Gain or loss from Market-to-Market Election. Filers who elect on Form 8621 to have the Mark-to-Market rules apply to the PFIC, report the gain or loss in Part IV of Form 8621.
  • Distributions from and dispositions of stock of a Section 1291 fund. Filers of Form 8621 who do not elect to have the PFIC taxed under the QEF or Mark-to-Market rules, report the distributions from and dispositions of stock of the PFIC in Part V of Form 8621.

Specific penalties are not imposed for failure to file Form 8621, unlike the burden of penalties and sanctions imposed by the Foreign Account Tax Compliance Act (“FATCA”). However, regulations coordinate the filing of this form with requirements in the filing of other forms such as the Form 8938 (individual FATCA reporting requirement). U.S. individuals are required to disclose any directly held foreign assets on Form 8938. Exception to this requirement applies to all foreign financial assets the person reports in certain international reporting forms such as Form 8621.

How Flott and Co. PC Helps You

Penalties for failure to file Form 8621 could include a $10,000 penalty (under Form 8938), and suspension of the statute of limitations with respect to the U.S. shareholder’s entire tax return until Form 8621 is filed. This suspension of the statute of limitations provides the IRS with unlimited time to audit the U.S. shareholder’s tax return.

Our company assists you in the process of filing Form 8621, providing you with all the details, resources, and helping you respond to disputes as we represent businesses and individuals in their quest to manage their financial matters with the best tools available.

Please contact us to learn more.