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Non-US Mutual Fund (Form 8621)

Summary

Form 8621 is used by U.S. persons to report their ownership in a Passive Foreign Investment Company (PFIC), which is a foreign corporation with significant passive income or assets. U.S. expats must file this form to report dividends, capital gains, and elections related to PFICs. It ensures compliance with U.S. tax rules and tracks income from foreign investments, including any taxes owed on excess distributions.

Description

Form 8621, titled "Information Return by a Shareholder of a Passive Foreign Investment Company or a Qualified Electing Fund", is a U.S. tax form used by U.S. persons to report their interest in a Passive Foreign Investment Company (PFIC) or a Qualified Electing Fund (QEF). This form is primarily filed to comply with the U.S. tax rules governing PFICs, which are foreign corporations that have significant passive income or assets.

What is a Passive Foreign Investment Company (PFIC)?

A PFIC is a foreign corporation that meets either of the following criteria:

  1. Income Test: At least 75% of its gross income is passive income (such as interest, dividends, rents, and royalties).
  2. Asset Test: At least 50% of the value of its assets are held for the production of passive income.

PFICs are common in foreign mutual funds, hedge funds, or other foreign investment vehicles that are not actively engaged in business operations.

Why is Form 8621 Required?

U.S. persons (including U.S. citizens, residents, and certain entities) who own shares in a PFIC are required to file Form 8621 if they meet specific conditions. This form is used to report:

  • Ownership in the PFIC.
  • Dividends, capital gains, and other income from the PFIC.
  • Elections related to PFICs (such as making a QEF election or an Mark-to-Market election).

The IRS uses Form 8621 to track U.S. taxpayers' investments in PFICs and to ensure that income from such investments is reported and taxed appropriately under U.S. tax law.

Key Information Reported on Form 8621

The form collects information about the PFIC and the shareholder’s financial activities with respect to the PFIC, including:

  1. Identification of the PFIC: The name and address of the foreign corporation and details about the shareholder’s ownership.
  2. Income from the PFIC: Information on dividends, interest, and other income earned from the PFIC.
  3. Capital Gains: Report any gains or losses from the sale of PFIC shares.
  4. PFIC Elections: Whether the shareholder elects to treat the PFIC as a Qualified Electing Fund (QEF) or make the Mark-to-Market election.
  5. Tax Liabilities: Report any taxes owed related to income from the PFIC, including under the PFIC rules.
  6. Excess Distribution: If the shareholder receives a distribution from the PFIC that exceeds certain thresholds, the form requires special reporting due to the special taxation rules for excess
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