On Dec. 30, the IRS issued temporary (T.D. 9650) and proposed
(REG-140974-11) regulations providing guidance on determining
passive foreign investment company (PFIC) ownership and annual
shareholder filing requirements. A foreign corporation is generally
a PFIC under Section 1297(a) if either 75% or more of its gross
income for the taxable year is passive or at least 50% of the
assets it held during the taxable year generate or are held for the
production of passive income. Importantly, these temporary
regulations apply to tax years ending on or after Dec. 31,
2013.
The issuance of these temporary regulations means that certain
shareholders of PFICs that are not qualified electing funds under
Section 1293, or who have not made a mark-to-market election under
Section 1296, may need to begin filing Forms 8621, Information
Return by a Shareholder of a Passive Foreign Investment Company or
Qualifying Electing Fund to report direct and indirect interests in
such PFICs.
A filing requirement for these shareholders was established under Section 1298(f) in 2010 as part of the Hiring Incentives to Restore Employment Act. Subject to certain exceptions, the requirement to file Form 8621 applies to shareholders that own an interest in a PFIC at any time during the shareholder's taxable year. Shareholders of a foreign corporation at any time during 2013 should determine whether the foreign corporation was a PFIC and whether they are potentially required to file Forms 8621.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
