The QEF or Qualified Electing Fund election under §1295 is optional method of taxation available for certain PFICs. In order for a mutual fund or other PFIC investment to allow for Qualified Electing Fund treatment by the shareholders it must jump through some hoops for the IRS. …

What is a PFIC Annual Information Statement?

The PFIC Annual Information Statement contains the information investors need for PFIC reporting for purposes of the QEF election. For some funds, we are also providing IRS Form 8937 which contains certain information that may be required when filing U.S. tax returns.

Can a partnership make a QEF election?

Since a foreign partnership cannot make PFIC elections on behalf of its partners, such as the Qualified Electing Fund (“QEF”) election, (only a U.S. shareholder can make such elections), such U.S. investors would need to file Form 8621s for the indirect ownership of the PFIC investments and make any necessary elections …

What is an Unpedigreed QEF?

If a QEF election is made effective after the first day of the first year of the U.S. shareholder’s holding period, the QEF is an “unpedigreed QEF”. An “unpedigreed QEF” is subject to the PFIC default rules (i.e., tax on “excess distributions”) on a sale or liquidation of the stock.

How is a PFIC taxed?

A shareholder of a PFIC is by default subject to the Sec. All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec. 1291(a)(1)(B)).

Who must file Form 8621?

U.S. Tax Form 8621 for Shareholders of Passive Foreign Investment Companies. As a U.S. citizen living and working abroad, you may have opened a foreign mutual fund investment account. If you’ve received any income from these funds in the past year, you’re required to report it using U.S. tax Form 8621.

When to include PFIC / QEF in Schedule K-1?

U.S. Treas. Reg. Section 1.1411-10 (g) Election with respect to CFC and PFIC/QEF income. The Schedule K-1 footnote disclosure will advise individual partner’s in the fund to make this election if the fund has included PFIC/QEF income in the partner’s Schedule K-1 taxable income.

How is a gain reported on a PFIC form?

The gain is reported on Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, filed with the taxpayer’s federal income tax return. The holding period of a U.S. shareholder for purposes of applying the PFIC rules—but not for other tax purposes—begins on the date of the deemed sale.

Who is the PFIC tax adviser for QEF?

An example illustrating the results of the excess-distribution rules vs. the QEF tax regime is available here. Alan Wong is a senior manager at Holtz Rubenstein Reminick LLP, DFK International/USA, in New York City.

How are Schedule K-1s reported for Foreign Investment Partnership?

We now turn our attention to the offshore which is determined for US tax purposes as a foreign investment partnership. Schedule K-1s will be issued to investors who are partners in the partnership. The Schedule K-1 reports the partner’s distributive share of the taxable income, gain, loss, deduction and credit from the partnership.