Is a PFIC bad?

A PFIC is Passive Foreign Investment Company. The IRS penalizes PFICs (unless certain elections are made) by requiring owners of the PFIC to pay increased tax rate on earnings such as Capital Gains and Dividends. A PFIC is a Passive Foreign Investment Company. From the U.S. tax perspective, a PFIC is a bad thing.

What makes a company a PFIC?

A passive foreign investment company (PFIC) is a corporation, located abroad, which exhibits either one of two conditions, based on either income or assets: At least 50\% of the company’s assets are investments, which produce income in the form of earned interest, dividends, or capital gains.

What is considered a PFIC?

A PFIC is a non-U.S. corporation that has at least 75\% of its gross income considered passive income or at least 50\% of the company’s assets are investments that produce passive income. Passive income generally includes dividends, interest, rent, royalties and capital gains from the disposition of securities.

What is a PFIC for US tax purposes?

The Passive Foreign Investment Company (PFIC) rules are designed to prevent U.S. persons from deferring tax on passive income earned through non- U.S. corporations, or from converting this income into capital gains that are taxed at preferential rates.

Is a money market a PFIC?

What is a Passive Foreign Investment Company (PFIC)? PFICs are simply “pooled investments” registered outside of the United States. Pooled investments include foreign mutual funds, exchange-traded funds (ETFs), money-market funds, hedge funds and investments within non-U.S. insurance products.

Is a mutual fund a PFIC?

The IRS strictly enforces PFIC Rules. That is because the IRS hates Mutual Funds from overseas — so much so, that foreign mutual funds have been designated as PFICs for tax reporting purposes, which is very bad for tax purposes. …

Is a money market fund a PFIC?

Are banks PFIC?

Active financing income. Under the final regulations, only entities licensed as banks are eligible for the active financing trade or business exception to PFIC testing. This change is significant for investors in nonbank foreign finance companies because they now are subject to the PFIC regime.

Can an IRA own a PFIC?

However, the instructions to Form 8621 clearly state that an IRA is not treated as a shareholder of a corporation for PFIC purposes, and, hence, is not obligated to file IRS form 8621 on behalf of the IRA.

Can a publicly traded company be a PFIC?

Generally, a publicly traded foreign corporation will be classified as a PFIC if 50\% or more of the average gross value of its assets, determined at the end of each quarter, is attributable to assets such as cash or cash equivalents that produce passive income.

Is a holding company a PFIC?

You must do it for each year that you own Holding Co to be sure it is not a PFIC. According to IRC §1298(b)(1), if a company was a PFIC previously in your holding period, it continues to be taxed as a PFIC for you now and in the future.