Temporary and final regulations recently issued by the Internal Revenue Service (IRS) and Treasury Department provide guidance for owners of passive foreign investment companies (PFICs).
The new rules require holders of Canadian mutual funds to file annual information reporting returns for taxable years ending after December 30, 2013. Individuals with small mutual fund holdings and mutual funds held in certain foreign pension plans are exempt.
Although the new rules affect all PFICs, this Tax Insights focuses on PFICs that are Canadian mutual fund trusts, which can include income trusts, real estate investment trusts (REITs) and Exchange Trade Funds (ETFs) that are structured as mutual fund trusts for Canadian income tax purposes.
The US PFIC rules are designed to prevent taxpayers from:
A PFIC is a foreign (non-US) corporation that meets one of the following tests:
Canadian mutual funds trusts are considered to be PFICs.
The new regulations affect US persons who own investments in PFICs. US persons include:
Starting 2013, the new regulations require all US persons that directly or indirectly own shares in a PFIC at any time during the year to file Form 8621. Previously, Form 8621 had to be filed only in certain circumstances.