The Final Regulations finalize, with certain changes, proposed regulations and withdraw temporary regulations from 2013.
On December 27, 2016, Treasury and the IRS issued final regulations that provide guidance on determining the ownership of a passive foreign investment company (PFIC) and on certain reporting obligations for PFIC shareholders under Section 1298(f). The Final Regulations finalize, with certain changes, proposed regulations and withdraw temporary regulations from 2013. The Final Regulations are effective for tax years ending on or after December 31, 2013.
The Final Regulations underscore the importance of a taxpayer properly identifying its PFIC investments (both direct and indirect) and determining whether it is considered a PFIC ‘shareholder.’ A taxpayer’s failure to meet its Section 1298(f) reporting obligations may result also in an extension of the limitation period. The Final Regulations provide helpful exceptions to the definition of ‘shareholder’ and the reporting requirements under Section 1298(f) in many common investment scenarios. However, the ownership and reporting rules are broad, and can create significant compliance costs.