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FATCA PFIC Reporting | International Tax Attorney

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FATCA PFIC Reporting is an important feature in today’s U.S. tax compliance. In this article, I will focus on the explanation of the FATCA PFIC Reporting requirement for U.S. shareholders of a PFIC.

FATCA PFIC Reporting: FATCA Background

The Foreign Account Tax Compliance Act (“FATCA”) is contained in Chapters 1471–1474 of the Internal Revenue Code (“IRC”) as enacted into law by section 501(a) of the Hiring Incentives to Restore Employments (HIRE) Act 2010. FATCA was enacted specifically to combat offshore tax evasion by US persons with secret foreign accounts.

There are two large parts of FATCA. The first part concerns only foreign financial institutions (FFIs). Under FATCA, the FFIs are now required to identify US accountholders and report their accounts to the IRS. The second part of FATCA requires US taxpayers to report their foreign assets and foreign income on Form 8938, which is filed with the taxpayers’ US tax return.

This article is mostly concerned with the FATCA PFIC reporting on Form 8938.

FATCA PFIC Reporting: PFIC Background

A Passive Foreign Investment Company, commonly known as PFIC, is one of the most complex tax designations in the United States. The annual tax compliance for PFICs (especially default Section 1291 PFICs) can be tremendously burdensome. Furthermore, distributions and capital gains from PFICs may be subject to a much higher PFIC income tax (and PFIC interest on the PFIC tax).

A PFIC is any foreign corporation that falls within the definition of IRC Section 1297(a), which states that a foreign corporation is a PFIC if: “(1) 75 percent or more of the gross income of such corporation for the taxable year is passive income, or (2) the average percentage of assets (as determined in accordance with subsection (e)) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent.” Foreign mutual funds is one of the most common examples of PFICs; however, other companies may also fall within the scope of the IRC Section 1297(a).

If a U.S. taxpayer has PFICs, he is required to file Form 8621 “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund”. A separate form 8621 should be filed for each PFIC (often, it is more convenient to file a separate Form 8621 for various blocks of the same PFIC; however, one needs to make sure that the same identification number is provided on each Form 8621 filed for the same PFIC).

FATCA PFIC Reporting: Relationship Between Form 8938 and Form 8621

In general, the FATCA foreign financial asset reporting on Form 8938 overlaps with the PFIC reporting obligation on Form 8621, but the relationship between the two forms is fairly clear. If forms 8621 must be filed (and, since 2013, this is pretty much always the case for PFICs), then the PFICs do not need to be reported on Form 8938. The number of forms 8621 must still be specified on Form 8938.

It is also important to remember that PFICs must still be disclosed on FBARs even if they are reported on Forms 8621 and 8938.

Contact Sherayzen Law Office for Help with FATCA PFIC Reporting

PFIC calculations themselves are some of the most complex requirements in the IRC. FATCA PFIC reporting further complicates the already difficult issues surrounding PFICs. It is very easy to make mistakes which result in the imposition of high IRS penalties. The correction of these mistakes will also likely result in additional legal fees.

This is why you need to secure the help of an experienced international tax law firm as early as possible and Sherayzen Law Office is the perfect fit. We have helped numerous US taxpayers around the world with their FATCA PFIC matters and we can help you.

Contact Us Today to Schedule Your Confidential Consultation!

IRS Form 8938 and Revised Form 8621 Filing Requirements Under Notice 2011-55

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The IRS recently released Notice 2011-55, partially suspending certain Foreign Account Tax Compliance Act (“FATCA”) information reporting requirements until Form 8938, (Statement of Specified Foreign Financial Assets), and a revised Form 8621, (Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund) are released.

It is important to note that while the reporting requirements of Forms 8938 and revised Form 8621 have been partially suspended, they have not been excused for taxpayers. Thus, taxpayers should be aware that until the new forms are issued, tax preparation may be necessary in order to be in compliance and avoid severe penalties.

FATCA Reporting Requirements

Congress enacted FATCA as part of the Hiring Incentives to Restore Employment Act (“HIRE” Act). Included in FATCA is the additional information reporting requirements of IRC Sections 6038(D) and 1298(f).

Under 6038(D), taxpayers who hold more than $50,000 in the aggregate in any financial account maintained by a foreign financial institution, or in any foreign stock, interest in a foreign entity (including a foreign trust, or financial instrument with a foreign counterpart that is not held in a custodial account of a financial institution) are subject to file a Form 8938 with their annual return.

IRC Code Section 1298(f) requires a U.S. person who is a shareholder in a passive foreign investment company (“PFIC”) to file an annual report, Form 8621. Notice 2011-55 states that the IRS will be issuing a revised Form 8621. Once the revised form is issued, individuals must retroactively file the revised Form 8621 for tax years beginning after the date of the HIRE Act (March 18, 2010).

The IRS is planning on also issuing further regulations regarding these reporting requirements.

Notice 2011-55

IRS Notice 2011-55 provides that the IRC 6038D Form 8938 reporting requirements are suspended until the form is released. Additionally, as noted above, for U.S. shareholders of PFIC’s who were not previously required to file Form 8621 under the current requirements before the enactment of Section 1298(f), reporting requirements are suspended (but not excused) until the revised Form 8621 is released. Taxpayers who are already required to file Form 8621 under the current instructions must continue to file the form.

When the IRS issues the revised forms, taxpayers who must file will be required to attach the appropriate forms to their next information return or tax return, completed for the suspended tax year. Failure to file (or to properly file) Form 8938 and/or Form 8621 for the suspended tax year may result in the extension of the statute of limitations under section 6501(c)(8), and penalties may also be applied.

A Form 8938 or revised Form 8621 filed for a suspended tax year with a timely filed information or tax return will generally be treated as having been filed in the date that the income tax or information return for the suspended tax year was filed.

Subject to certain exceptions, the statute of limitations for assessment of tax will not expire until three years after Form 8938 and/or revised Form 8621 is received by the IRS.

FBAR Requirements Not Affected

The IRS stated in Notice 2011-55 that the filing requirements of FinCEN Form 114 formerly Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts; “FBAR”) are not suspended under the notice.

Contact Sherayzen Law Office For Experienced Legal Help

This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice. Tax planning and reporting often necessitates an experienced understanding of complex regulations, statutes, and case law, and penalties for failure to comply can be substantial. If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your Federal, international, cross-border, and state tax needs. Call or email for a consultation today.