{"id":3080,"date":"2017-08-17T21:51:02","date_gmt":"2017-08-17T21:51:02","guid":{"rendered":"http:\/\/www.ua-cpas.com\/?p=3080"},"modified":"2019-01-13T05:18:54","modified_gmt":"2019-01-13T05:18:54","slug":"own-a-foreign-mutual-fund-a-pfic-problempfic-is-not-a-disease-but-thanks-to-the-irs-if-youve-got-one-you-want-to-find-a-cure-asap-if-you-own-shares-in-a-foreign-based-mutua","status":"publish","type":"post","link":"https:\/\/www.ua-cpas.com\/blog\/index.php\/2017\/08\/17\/own-a-foreign-mutual-fund-a-pfic-problempfic-is-not-a-disease-but-thanks-to-the-irs-if-youve-got-one-you-want-to-find-a-cure-asap-if-you-own-shares-in-a-foreign-based-mutua\/","title":{"rendered":"Own a foreign mutual fund? You may have a PFIC problem!"},"content":{"rendered":"<p><span style=\"color: #800080; font-family: Calibri;\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-medium wp-image-3426\" src=\"https:\/\/www.ua-cpas.com\/blog\/wp-content\/uploads\/2018\/12\/foreign-flags-300x168.png\" alt=\"\" width=\"300\" height=\"168\" \/>PFIC is not a disease but, thanks to the IRS, if you\u2019ve got one, <\/span><span style=\"color: #800080; font-family: Calibri;\">you want to find a cure ASAP.<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">If you own shares in a foreign-based mutual fund, you have a PFIC (Passive Foreign Investment Company). If you don\u2019t do something about it, you are subject to the onerous PFIC taxation regime imposed by the IRS. You pay tax at the highest ordinary income tax rate plus an interest charge whenever you take a distribution or the fund has a capital gain. This means that your capital gains get taxed at 39.6%+ rather than 15%. Ouch!<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">Example: The fund reinvests all income in 20&#215;5, 20&#215;6 and 20&#215;7. You pay no tax.<\/span><span style=\"color: #000000; font-family: Calibri;\">\u00a0 <\/span><span style=\"color: #000000; font-family: Calibri;\">In 20&#215;8 you take a 10,000 distribution. You pay 3,960 tax plus interest on the tax you did not pay in the prior three years.<\/span><\/p>\n<p><span style=\"color: #800080; font-family: Calibri;\">What can you do?<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">There are two possible elections that can be made:<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">Make the QEF election and you treat your PFIC as a regular mutual fund. You pay ordinary or capital gains tax on your share of the funds income annually.. OR<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">Make the Mark to Market election and you pay tax on the annual increase in FMV.<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">In either case, if you didn\u2019t make the election in the first year you owned the fund, you have to pay the steep PFIC tax on all prior income and increases in FMV. For assistance with these difficult tax issues, please contact us.<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">\u00a0<\/span><\/p>\n<p><span style=\"color: #000000; font-family: Calibri;\">\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Foreign Mutual Funds are considered PFICS- Passive Foreign Investment Companies. They are subject to an onerous tax regime.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,10,22,23],"tags":[89,90,91,168],"class_list":{"0":"post-3080","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-small-business-forum","7":"category-hot-topics","8":"category-tax-tips-for-individuals","9":"category-taxes","10":"tag-foreign-account-tax-compliance-act","11":"tag-foreign-accounts","12":"tag-foreign-asset-reporting","13":"tag-pfics","14":"entry"},"_links":{"self":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3080","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/comments?post=3080"}],"version-history":[{"count":2,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3080\/revisions"}],"predecessor-version":[{"id":3442,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/posts\/3080\/revisions\/3442"}],"wp:attachment":[{"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/media?parent=3080"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/categories?post=3080"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ua-cpas.com\/blog\/index.php\/wp-json\/wp\/v2\/tags?post=3080"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}