Form 8621 Instructions
Published on March 04, 2024
by Rose-ann De Villa, EA, CPA
Rose-ann De Villa, an IRS Enrolled Agent and CPA with 12 years of expat tax experience, specializes in U.S. tax preparation, tax planning, and tax advice for U.S. citizens and Green Card holders living and working in the UK.
Rose-ann has also talked about starting a business in the UK as a U.S. expat
Rose-ann has been mentioned in the Daily Express UK news wherein she talked about Stimulus payments and Child Tax Credit refunds for U.S. expats in the UK.
Table of Contents
Do I need to file Form 8621 for my foreign investments?
If you’re a US taxpayer with investments in a Passive Foreign Investment Company (PFIC), you’re obligated to file Form 8621. This requirement holds true no matter the size of your investment or whether you’ve received distributions from the PFIC within the tax year.
What do I need to understand about Form 8621?
In general, Form 8621 is titled “Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund,” and serves as a reporting mechanism for US taxpayers with investments in PFICs.
It’s designed to report income, along with any realized gains or losses from investments in foreign mutual funds, index funds, hedge funds, or similar pooled investments located outside the United States.
Who needs to file Form 8621?
The obligation to file Form 8621 extends to US individuals, including citizens and residents, as well as US-based entities like corporations, partnerships, or trusts, under the following conditions:
- Direct ownership of PFIC shares,
- Indirect ownership of PFIC shares through an entity,
- Participation in certain elections related to PFIC holdings,
- Receipt of direct or indirect distributions from a PFIC,
- Realization of gains from direct or indirect dispositions of PFIC shares.
What are the key requirements to file Form 8621?
Filing Form 8621 involves several key requirements that vary based on the taxpayer’s specific circumstances, including:
- Annual Submission: Typically, you must file Form 8621 each year alongside your federal income tax return.
- Income Disclosure: You’re required to report your proportion of earnings and any gains distributed or realized from PFIC investments.
- Election Details: Reporting is necessary if you’ve opted for specific tax treatments, such as the Qualified Electing Fund (QEF) or Mark-to-Market election, on your PFIC holdings.
- Filing Without Tax Due: There are instances where filing Form 8621 is mandatory, even if no tax is owed. This situation arises if you haven’t received distributions or recognized gains on your PFIC investments within the tax year.
I want to know more about US taxes abroad
How do I identify if my foreign investment should be reported on Form 8621?
Form 8621 is essential for US taxpayers with investments in Passive Foreign Investment Companies (PFICs). This includes holdings in:
- Foreign mutual funds,
- Hedge funds,
- Insurance products,
- Other pooled investment vehicles located outside the United States.
What are the criteria for investments to be considered PFICs?
Investments qualify as PFICs if they meet one of the following criteria:
- Income Test: Over 75% of the corporation’s gross income is passive, derived from sources such as dividends, interest, or royalties.
- Asset Test: At least 50% of the corporation’s assets produce passive income.
What is the general information needed to report on Form 8621?
When filing Form 8621, you’ll need to furnish comprehensive details about your PFIC investments, including:
- PFIC Identification: The name, address, and tax identification number of the foreign corporation.
- Shareholder Details: Information about you as the shareholder, such as the quantity of shares owned throughout the tax year.
- Income and Distributions: Specifics on any income received from the PFIC, like dividends or interest payments.
- Election Information: Disclosure of any tax elections made concerning your PFIC holdings, for instance, a Qualified Electing Fund (QEF) or Mark-to-Market election.
- Gain or Loss Calculations: For any PFIC shares sold or disposed of, you must calculate and report the resulting gains or losses.
Do I need to report minimal PFIC holdings?
Yes, when it comes to Passive Foreign Investment Companies (PFICs), there’s no minimum ownership threshold that triggers the need for reporting on Form 8621. All US taxpayers, including expatriates, must file this form if they hold any direct or indirect stake in a PFIC, no matter how small the investment might be.
This requirement highlights the importance of understanding that the obligation to file Form 8621 is based on the nature of the foreign investment as a PFIC, rather than the size of the stake held.
Does Form 8621 reporting differ between individuals and entities?
The obligation to file Form 8621 extends to both individuals and entities under US jurisdiction, with slight variations in application:
- For Individuals: US citizens and residents, including those living abroad, are required to report their PFIC holdings. This encompasses expatriates with investments in foreign mutual funds or similar financial instruments.
- For Entities: American entities, such as corporations, partnerships, trusts, or estates, especially those under the control of expatriates, must adhere to PFIC reporting rules. Like individuals, these entities are required to file Form 8621 for any direct or indirect PFIC ownership.
Can I aggregate PFIC investments on a single Form 8621?
Generally, a separate Form 8621 must be filed for each PFIC in which you have an interest.
Aggregating multiple PFIC investments on a single form is not typically allowed.
Each investment in a PFIC is treated separately for reporting purposes, requiring individual attention to detail for each form. This ensures accurate reporting of income, distributions, and any elections made for each PFIC.
Is it possible to consolidate PFIC reports on one Form 8621?
Filing Form 8621 typically demands a different form for each PFIC investment held.
Consolidating reports for multiple PFIC investments on a single Form 8621 is generally not allowed. The IRS mandates separate reporting for each PFIC to ensure the precise documentation of income, distributions, and any specific tax elections applicable to each investment.
Are there specific situations where I don’t need to file Form 8621?
Yes, there are certain situations where you might be exempt from filing Form 8621:
- De Minimis Ownership Exception: If the aggregate value of your PFIC investments does not exceed $25,000 ($50,000 for married couples filing jointly), you might be exempt from filing, unless you’ve received dividends or have realized gains during the tax year.
- Dual Resident Taxpayers Exception: The final regulations introduce an exception for dual resident taxpayers who determine their US income tax liability as a nonresident alien for the taxable year pursuant to treaty tie-breaker provisions. This means that if an individual is considered a nonresident alien for US tax purposes due to a tax treaty between the U.S. and another country, they may not need to file Form 8621 for the portion of the year they are considered a nonresident.
What’s the process for including Form 8621 with my tax return?
Form 8621 must accompany your US income tax return, typically Form 1040, each year. For those with investments in multiple PFICs, you’ll need to prepare a separate Form 8621 for each investment.
The form demands comprehensive details about each PFIC, including your portion of its income, any gains or distributions received, and the tax elections you’ve opted for. Accuracy and timeliness are crucial to ensure compliance by the tax filing deadline.
Where can I find help with reporting Form 8621?
While the IRS offers basic instructions and guidance for Form 8621 on its website, obtaining personalized advice from the agency can be challenging. For those facing complex reporting scenarios or managing investments in several PFICs, consulting with a tax professional who specializes in international taxation and PFIC regulations is highly recommended.
How long must I keep records pertaining to my PFIC reporting?
It’s wise to keep all records related to your PFIC reporting for a minimum of seven years. This includes all documentation of your PFIC investments, any income or gains calculations, and records of elections you’ve made regarding your holdings.
Maintaining detailed records is crucial not only for your peace of mind but also for providing necessary documentation in the event of an IRS inquiry or audit regarding your Form 8621 filings.
