United States: Passive foreign investment company (PFIC) guidance provides new reporting exceptions and clarifications

Feb 2017

Certain US persons may become subject to the passive foreign investment company (PFIC) regime if they own an interest in a foreign corporation that invests primarily in passive investments (or become US persons while owning such interests). The PFIC regime imposes obligations for US persons to report taxable income and comply with certain reporting requirements. The Treasury and IRS recently released final regulations that provide guidance on determining the ownership of a PFIC and on certain reporting obligations of PFIC shareholders. The final regulations finalize, with some modifications, proposed regulations and withdraw temporary regulations issued in 2013.

In brief, the final regulations provide clarification on various issues and provide new exceptions that eliminate the need to file reporting forms to the IRS – one such exception is for dual resident taxpayers that utilize income tax treaty residency tie-breaker provisions. Other exceptions are provided for bona fide residents of certain US territories and PFIC stock held for 30 days or less.

Employers or other entities with internationally mobile individuals should review annually whether their employees' or partners' (for example) direct and indirect investments in foreign corporations could trigger these PFIC rules. New exceptions and clarifications under the final regulations should be considered for determining the proper filing obligations.

 

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