Segal, Cohen & Landis, P.C.
PFIC Reporting and Cleanup — Avoid the Punitive Default Tax
IRS tax attorneys — Beverly Hills, CA. National representation.
Passive Foreign Investment Companies (PFICs) include most foreign mutual funds, foreign ETFs, foreign money market accounts, and some foreign insurance products. The US tax rules for PFICs — absent a valid election — are punitive by design.
Without a proper election, PFIC gains are taxed at the highest ordinary income rate in effect over the holding period, plus an interest charge calculated as if the tax was owed in each prior year. This can produce effective tax rates well above 100%.
Most US persons with foreign investments do not know they hold PFICs. They do not know they need to file Form 8621. At Segal, Cohen & Landis, we handle PFIC identification, annual Form 8621 filing, QEF and mark-to-market elections, and retroactive PFIC cleanup.
How We Help
Our Approach to PFIC Reporting Attorney
PFIC Identification and Analysis
We analyze your foreign investment portfolio — including funds, ETFs, insurance contracts, and any foreign company with predominantly passive income — to identify PFIC holdings.
Form 8621 Preparation and QEF/MTM Elections
Form 8621 must be filed for each PFIC. The QEF (Qualified Electing Fund) election converts PFIC income to capital gains and ordinary income in the year earned, rather than deferring to the punitive default treatment.
PFIC Retroactive Cleanup
For US persons who have held PFICs for years without reporting, we prepare delinquent Form 8621s and advise on whether Streamlined procedures or another approach is optimal.
Ongoing Annual Compliance
PFIC annual filing requirements are complex. We handle Form 8621 preparation for all PFIC holdings as part of an ongoing annual compliance engagement.
How It Works
The Resolution Process
Foreign Investment Inventory
We catalog all foreign investment holdings and analyze each for PFIC status.
Election Analysis
We evaluate the QEF, MTM, and default methods for each PFIC, considering basis, holding period, and documentation availability.
Form 8621 Preparation
We prepare Form 8621 for all PFIC holdings, make applicable elections, and calculate tax under the chosen method.
Integration with Annual Return
PFIC income, gains, and elections are integrated into the annual Form 1040 and all related schedules.
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Common Questions
Frequently Asked Questions
What is a PFIC?+
A Passive Foreign Investment Company is any foreign corporation where 75% or more of gross income is passive income, OR 50% or more of assets produce or are held to produce passive income. Most foreign mutual funds, ETFs, and money market accounts qualify as PFICs.
What happens if I don't report my PFICs?+
Without Form 8621, gains from PFIC dispositions are subject to the excess distribution regime: gains are spread over the holding period and taxed at the highest rate in each year, plus an interest charge. The effective tax rate can significantly exceed the capital gains rate.
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Beverly Hills · Los Angeles · National
Segal, Cohen & Landis, P.C.
9100 Wilshire Boulevard, 601 East Tower, Beverly Hills, CA 90212
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