Form 8621: passive foreign investment company shareholders

What Form 8621 reports

The IRS describes Form 8621 as a return for U.S. persons with direct or indirect PFIC shareholdings when specified reporting circumstances apply. Those circumstances include certain distributions, gains from dispositions, reporting connected with QEF or section 1296 elections, elections reported in Part II, and annual reporting under section 1298(f).^[1][2]

The instructions generally require a separate form for each PFIC held directly or indirectly, including each PFIC within an ownership chain when the stated circumstances apply. A single form for one PFIC can combine its annual information, relevant income reporting, and elections.^[2]

Who the shareholder rules cover

The instructions cover indirect ownership as well as shares held directly. Their general definition includes a shareholder owning at least 50% of a foreign corporation that is not a PFIC and that owns PFIC stock directly or indirectly. It also includes ownership through another PFIC or through a pass-through entity.^[2]

For these rules, pass-through entities include partnerships, S corporations, trusts, and estates. The instructions generally identify U.S. interest holders in foreign pass-through entities holding PFIC stock, and U.S. persons treated as shareholders of stock held in trust under sections 671 through 679, as filers unless an exception applies.^[2]

Ownership through certain listed exempt organizations or accounts does not produce shareholder status under these rules. The list includes individual retirement plans or annuities and qualified tuition programs under sections 529 or 530.^[2]

Definitions used in the instructions

A foreign corporation falls within the PFIC definition if it satisfies either the income test or the asset test. The income test sets a threshold of at least 75% passive gross income for its tax year. The asset test requires that the average percentage of assets producing passive income or held to produce it be at least 50%.^[2]

QEF status depends on a direct or indirect U.S. shareholder making the section 1295 election and satisfying the referenced requirements. The instructions describe annual inclusion of the shareholder's proportionate ordinary earnings as ordinary income and net capital gain as long-term capital gain.^[2]

The section 1296 mark-to-market election is available for PFIC stock meeting the marketable-stock definition. That definition includes regularly traded stock on the specified exchanges or market system, plus certain stock described in the referenced regulations.^[2]

Information requested in Part I

Part I generally applies to shareholders with annual reporting requirements under section 1298(f), subject to the instructions' exceptions. Joint return filers can use one Form 8621 for a particular PFIC in which both hold an interest. A shareholder with no excess distribution, disposition gain or election generally need not file when the total value of PFIC stock held is $25,000 or less, or $50,000 or less on a joint return.^[2]

Its entries request the share classes, acquisition date where applicable, closing share count, and closing value for the tax year. Part I also requests the PFIC category and applicable distribution, gain, income inclusion, or deduction amounts under the specified provisions.^[2]

The identifying-number instructions specify a Social Security number or IRS-issued taxpayer identification number for individuals. A reference ID is required for the foreign entity when no EIN is entered, although the instructions permit both identifiers.^[2]

Statements and attachments

QEF reporting uses information from a PFIC Annual Information Statement, an Annual Intermediary Statement, or a combined statement. The PFIC statement supplies the shareholder's proportionate ordinary earnings and net capital gain, or enough information to calculate them.^[2]

The instructions require retention of Forms 8621, attachments, and the relevant annual statements for tax years covered by the QEF election. For multiple dispositions reported through Part IV, they request a separate statement for each disposition using the format of lines 13 through 14c. Part V also calls for an attached sheet calculating the taxation of an excess distribution.^[2]

Connections with other IRS forms

The instructions connect Form 8621 with Form 8938 through a reporting checkbox. It applies only when the filer also files Form 8938 and counts that Form 8621 among the forms reported in Part IV of Form 8938.^[2]

For noncorporate taxpayers, the Part III instructions direct the ordinary-income amount to Schedule 1 of Form 1040 or the comparable return line. The Part III instructions refer to the Schedule D instructions for net capital gain reporting. A QEF shareholder holding 10% by vote or value may also have a Form 8886 requirement if the QEF participated in a reportable transaction.^[2]

Filing timing and destination

The general filing instruction ties Form 8621 to the shareholder's return deadline, including extensions. It directs attachment to the tax return, or applicable partnership or exempt organization return, with both filed at the service center designated for that return.^[2]

Where no income tax or other return is required for the tax year, the instructions direct filing with the Internal Revenue Service Center in Ogden, UT 84201-0201.^[2]

Questions and answers

Related pages

• IRS forms: All form reference pages.
• FinCEN Report 114 (FBAR): foreign account reporting
• Form 1041: income tax return for estates and trusts
• Form 1116: foreign tax credit
• Form 2555: foreign earned income exclusion
• IRS form finder: Search the forms by keyword.