United States: Final Regulations Released Regarding PFIC Ownership Determination and Annual Reporting Requirements

On December 27, 2016, the Treasury Department (Treasury) and Internal Revenue Service (IRS) released final regulations regarding the determination of ownership of a passive foreign investment company ("PFIC") and regarding certain exceptions to the annual PFIC reporting requirements (the "PFIC Regulations"). The PFIC Regulations adopt, with certain changes, proposed regulations  published on December 31, 2013 (also released as temporary regulations), implement certain guidance initially set forth in Notice 2014-28 and Notice 2014-51 and remove the corresponding temporary regulations.

Determination of Ownership of a PFIC

The PFIC Regulations revise rules initially set forth in proposed regulations released in 1992 (withdrawn and reissued as the 2013 temporary regulations) regarding when a U.S. person who directly or indirectly owns 50 percent or more in value of the stock of a foreign corporation that is not a PFIC is considered to own a proportionate amount (by value) of any PFIC stock owned directly or indirectly by that foreign corporation. In general, a U.S. person that owns directly or indirectly 50 percent or more in value of the stock of a foreign corporation that is not a PFIC is considered to own a proportionate amount (by value) of any stock owned directly or indirectly by the non-PFIC foreign corporation (the "50 percent rule"). Treasury was concerned that this rule might be manipulated by a U.S. person using a domestic C corporation to hold part of the U.S. person's interest in the non-PFIC foreign corporation in order to reduce the ownership of the U.S. person in the non-PFIC foreign corporation below 50 percent, thereby avoiding the look-through rule. The PFIC Regulations accordingly provide that, for purposes of the 50 percent rule, a person who owns 50 percent or more in value of a domestic C corporation is considered to own a proportionate amount (by value) of any stock owned directly or indirectly by that corporation.

In order to avoid the possibility that this aspect of the 50 percent rule could result in overlapping ownership by two or more U.S. persons in the same PFIC stock, the PFIC Regulations also have a "non-duplication rule," under which PFIC stock held through a domestic C corporation will not be attributed to the U.S. person holding stock in the domestic C corporation if such PFIC stock is directly or indirectly held by another U.S. person (i.e., the domestic C corporation).  

The PFIC Regulations also clarify that, under the indirect ownership rules, the stock of a PFIC owned by an S corporation is treated as not owned by the S corporation (except for reporting purposes) but is treated as owned proportionately by its shareholders.

In addition, the PFIC Regulations implement the guidance set forth in Notice 2014-28, providing that U.S. persons holding PFIC stock through certain tax-exempt organizations or accounts (including certain deferred compensation accounts or individual retirement accounts ("IRAs")) are not treated as PFIC shareholders with respect to that stock, consistent with the principle of deferred taxation provided by the IRAs.

PFIC Reporting Requirements

The PFIC Regulations provide certain exceptions to the general rule that a U.S. person holding PFIC stock must file an annual report (Form 8621, "Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund") with the IRS, regardless of whether such U.S. person has received a distribution from, disposed of an interest in, or made an election in respect of such PFIC.[1]  Under the PFIC Regulations, the following categories of U.S. persons are not required to file annual reports with respect to their ownership of PFIC stock:

  • Certain U.S. persons that own PFIC stock that is marked to market under a mark-to-market provision other than the one provided under the PFIC rules in Section 1296;[2]
  • Tax-exempt entities or accounts unless the income derived with respect to the PFIC would be taxable;
  • Domestic partnerships wholly owned by a combination of foreign persons (that have no U.S. person treated as indirectly owning the stock of the PFIC) and tax-exempt entities or accounts (or by other domestic partnerships wholly owned by such foreign persons, tax-exempt entities or accounts); 
  • U.S. persons who are beneficiaries of non-U.S. pension funds holding PFIC stock where, pursuant to a U.S. income tax treaty, the income of such pension fund may be taxed to the U.S. person only when and to the extent the income is paid to, or for the benefit of,  the U.S. person, even if such non-U.S. pension funds are not treated as "foreign trusts" under Section 7701(a)(31)(B) (which classification had been a requirement to qualify for the exclusion under the prior temporary regulations);
  • Non-resident alien taxpayers with respect to the U.S., as determined under U.S. income tax treaty "tie-breaker" rules, who are otherwise resident aliens under the Code for reporting purposes (so-called "dual resident" taxpayers);[3]
  • Certain shareholders with respect to PFICs that were owned for a short period of time (30 days or less) during which no PFIC taxation was imposed on the shareholders (because there were no excess distributions or amounts realized and treated as excess distributions);[4] and
  • Certain bona fide residents of U.S. territories (namely the U.S. Virgin Islands, Guam and the Northern Mariana Islands, but not Puerto Rico or American Samoa) who do not have a U.S. income tax obligation and are not otherwise required to file a U.S. income tax return.

Certain Other Aspects of the PFIC Regulations

The PFIC Regulations retain the reporting exception thresholds set forth in the temporary regulations (i.e., $25,000 or less in aggregate PFIC holdings (or $50,000 in the case of filing a joint return), or for indirect ownership where the value of the indirectly owned stock is $5,000 or less). The PFIC Regulations also do not permit consolidated PFIC reporting (i.e., reporting with respect to multiple PFICs held by the same U.S. person on one form). Both of these points were raised in comments to the temporary regulations. As the current instructions to Form 8621 permit a PFIC shareholder to provide information on additional PFICs it holds on an attachment to the initial Form 8621, it is unclear whether the explicit refusal to allow consolidated PFIC reporting that Treasury set forth in the preamble to the PFIC Regulations will result in a change to that aspect of the instructions.

In addition, the PFIC Regulations clarify how a U.S. person should file a Form 8621 when such U.S. person is not otherwise required to file a U.S. income tax return (or information return, if applicable), and adopt the temporary regulations with respect to the removal of the requirement under Sections 6038 and 6046 that certain U.S. persons file Form 5471 ("Information Return of U.S. Persons With Respect to Certain Foreign Corporations") in circumstances where the U.S. person qualifies for the constructive ownership exception.


The PFIC Regulations provide some additional clarity regarding the application of the indirect ownership rules and also provide welcome exceptions to the generally applicable annual reporting requirements. 

The PFIC Regulations generally are effective for tax years ending on or after December 31, 2013, the date that the temporary regulations were published.

[1] This general rule is set forth in Section 1298(f). All Section references herein are to the U.S. Internal Revenue Code of 1986, as amended (the "Code").

[2] This exclusion was previously included in Notice 2014-51.

[3] Previously, a dual resident taxpayer, as a non-resident alien, would not be subject to U.S. tax under the PFIC rules, but as a resident alien under the Code would still have been subject to the filing requirement.

[4] This reporting exception is intended to address situations where a U.S. shareholder owns shares of an upper-tier PFIC that acquires a lower-tier PFIC which is liquidated into the upper-tier PFIC a few days after acquisition.   

Final Regulations Released Regarding PFIC Ownership Determination and Annual Reporting Requirements

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.