Instructions For Form 8621 December 2011 (Page 2 of 10) in pdf

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Tax Consequences for

income of the 25%-or-more owned

PFIC stock that is regularly traded

corporation.

(as defined in Regulations section

Shareholders of a Section 1291

1.1296-2(b)) on:

Fund

CFC overlap rule. A 10% U.S.

1. A national securities exchange

shareholder (defined in section 951(b))

Shareholders of a section 1291 fund

that is registered with the Securities

that includes in income its pro rata

are subject to special rules when they

and Exchange Commission (SEC),

share of subpart F income for stock of a

receive an excess distribution (defined

2. The national market system

CFC that is also a PFIC generally will

below) from, or recognize gain on the

established under section 11A of the

not be subject to the PFIC provisions

sale or disposition of the stock of, a

Securities Exchange Act of 1934, or

for the same stock during the qualified

section 1291 fund. A distribution may

3. A foreign securities exchange

portion of the shareholder’s holding

be partly or wholly an excess

that is regulated or supervised by a

period of the stock in the PFIC. This

distribution. The entire amount of gain

governmental authority of the country in

exception does not apply to option

from the disposition of a section 1291

which the market is located and has the

holders. For more information, see

fund is treated as an excess

characteristics described in Regulations

section 1297(d).

distribution.

section 1.1296-2(c)(1)(ii).

Note. The attribution rules of section

Excess distributions. An excess

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Stock in certain PFICs described in

1298(a)(2)(B) will continue to apply

distribution is the part of the distribution

Regulations section 1.1296-2(d).

even if the foreign corporation is not

received from a section 1291 fund in

treated as a PFIC with respect to the

For additional information, including

the current tax year that is greater than

shareholder under section 1297(d).

special rules for RICs that own PFIC

125% of the average distributions

stock, see Regulations section

received in respect to such stock by the

Qualified Electing Fund

1.1296-1 and 1.1296-2.

shareholder during the 3 preceding tax

(QEF) Election

years (or, if shorter, the portion of the

Tax Consequences

shareholder’s holding period before the

A PFIC is a QEF if a U.S. person who

If a PFIC shareholder elects to mark

current tax year). No part of a

is a direct or indirect shareholder of the

the stock to market, the shareholder

distribution received or deemed

PFIC elects (under section 1295) to

either:

received during the first tax year of the

treat the PFIC as a QEF. See the

shareholder’s holding period of the

1. Includes in income each year an

instructions for Election A on page 3 for

stock will be treated as an excess

amount equal to the excess, if any, of

information on making this election.

distribution.

the fair market value of the PFIC stock

Tax Consequences for

as of the close of the taxable year over

The excess distribution is

Shareholders of a QEF

the shareholder’s adjusted basis in

determined on a per share basis and is

such stock or

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allocated to each day in the

A shareholder of a QEF must

2. Is allowed a deduction equal to

annually include in gross income as

shareholder’s holding period of the

the lesser of:

stock. See section 1291(b)(3) for

ordinary income its pro rata share of

a. The excess, if any, of the

adjustments that are made when

the ordinary earnings and as long-term

adjusted basis of the PFIC stock over

determining if a distribution is an

capital gain the net capital gain of the

its fair market value as of the close of

QEF.

excess distribution.

the tax year or

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The shareholder may elect to extend

Portions of an excess distribution

b. The excess, if any, of the amount

the time for payment of tax on its share

are treated differently. The portions

of mark-to-market gain included in the

of the undistributed earnings of the

allocated to the days in the current tax

gross income of the PFIC shareholder

QEF (Election D) until the QEF election

year and the shareholder’s tax years in

for prior taxable years over the amount

is terminated.

its holding period before the foreign

allowed such PFIC shareholder as a

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The shareholder may make a

corporation qualified as a PFIC

deduction for a loss with respect to

deemed sale election (Election B) or a

(pre-PFIC years) are taxed as ordinary

such stock for prior taxable years.

deemed dividend election (Election C)

income. The portions allocated to the

to purge the section 1291 fund years

days in the shareholder’s tax years

See the instructions for Part III on

from its holding period.

(other than the current tax year) in its

page 7 for more information.

Note. A shareholder that receives a

holding period when the foreign

Basis adjustment. If the stock is held

corporation was a PFIC are not

distribution from an unpedigreed QEF

directly, the shareholder’s adjusted

included in income, but are subject to

(defined in Regulations section

basis in the PFIC stock is increased by

the separate tax and interest charge set

1.1291-9(j)(2)(iii)) is also subject to the

the amount included in income and

forth in section 1291(c).

rules applicable to a shareholder of a

decreased by any deductions allowed.

section 1291 fund (see below).

See the instructions for Part IV on

If the stock is owned indirectly through

page 8.

Basis adjustments. A shareholder’s

foreign entities, see Regulations section

basis in the stock of a QEF is increased

Exempt organizations. If a

1.1296-1(d)(2).

by the earnings included in gross

shareholder of a PFIC is a tax exempt

income and decreased by a distribution

Additional Information

organization, the rules of section 1291

from the QEF to the extent of

will apply only if a dividend from the

Required

previously taxed amounts.

PFIC would be taxable to the

shareholder under subchapter F.

A shareholder of a PFIC must attach

Section 1291 Fund

certain information to Form 8621. This

Mark-to-Market Election

A PFIC is a section 1291 fund if:

information includes:

A U.S. shareholder of a PFIC may elect

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1. The shareholder did not elect to

The number of shares in each class

to mark the PFIC stock to market if the

treat the PFIC as a QEF or make a

of stock owned by the shareholder at

stock is “marketable stock.” See the

mark-to-market election with respect to

the beginning of its tax year;

instructions for Election F on page 5 for

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the PFIC or

Any changes in the number of shares

information on making this election.

2. The PFIC is an unpedigreed QEF

in each class of stock during its tax

Marketable stock. Marketable stock

(as defined in Regulations section

year and the dates of such changes;

1.1291-9(j)(2)(iii)).

is:

and

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Instructions For Form 8621 December 2011 Page 2

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