Instructions For Form 8621 December 2011 (Page 4 of 10) in pdf

Annual Election Requirements

B. Deemed Sale Election in

C. Deemed Dividend Election

of the PFIC or Intermediary

in Connection with a QEF

Connection with a QEF

Election

PFIC Annual Information Statement.

Election

For each year of the PFIC ending in a

Who May Make the Election

taxable year of a shareholder to which

the section 1295 election applies, the

This is a deemed dividend election

This is a deemed sale election under

PFIC must provide the shareholders

under section 1291(d)(2)(B). This

section 1291(d)(2)(A). This election

with a PFIC Annual Information

election may be made by a U.S. person

may be made by a U.S. person that

Statement. The statement must contain

that elects to treat a PFIC that is also a

elects to treat a PFIC as a QEF for a

certain information, including:

CFC as a QEF for the foreign

foreign corporation’s tax year following

corporation’s tax year following its first

1. The shareholder’s pro rata share

its first tax year as a PFIC included in

tax year as a PFIC included in the

of the PFIC’s ordinary earnings and net

the shareholder’s holding period (an

shareholder’s holding period (an

capital gain for that taxable year or

unpedigreed QEF). A shareholder

unpedigreed QEF).

2. Sufficient information to enable

making this election is deemed to have

A shareholder making this election

the shareholder to calculate its pro rata

sold the PFIC stock as of the first day

is treated as receiving a dividend of its

share of the PFIC’s ordinary earnings

of the PFIC’s first tax year as a QEF

pro rata share of the post-1986

and net capital gain for that taxable

(the qualification date) for its fair market

earnings and profits (defined below) of

year. For other information required to

value.

the PFIC on the qualification date

be included in the PFIC Annual

(defined under the instructions for

Information Statement see Regulations

Special Rules

Election B above). The deemed

section 1.1295-1(g).

dividend is taxed as an excess

For purposes of this election, the

distribution, allocated only to the days

following apply.

Annual Intermediary Statement. If

in the shareholder’s holding period

•

The gain from the deemed sale is

the shareholder holds stock in a PFIC

during which the foreign corporation

taxed as an excess distribution

through an intermediary, an Annual

qualified as a PFIC. For this purpose,

received on the qualification date.

Intermediary Statement may be issued

the shareholder’s holding period ends

•

in lieu of the PFIC Annual Information

The basis of the stock is increased

on the day before the qualification date.

Statement. For the definition of an

by the gain recognized. The manner in

Special Rules

intermediary, see Regulations section

which the basis adjustment is made

For purposes of this election, the

1.1295-1(j). For details on the

depends on whether the shareholder is

following apply.

information that should be included in

a direct or indirect shareholder. See

•

The term “post-1986 earnings and

the Annual Intermediary Statement, see

Regulations section 1.1291-10(f).

profits” means the undistributed

Regulations section 1.1295-1(g)(3).

•

The new holding period of the stock

earnings and profits of the PFIC (as of

begins on the qualification date.

Combined statements. A PFIC that

the day before the qualification date)

•

The election may be made for stock

owns directly or indirectly any shares of

accumulated in tax years beginning

on which the shareholder will realize a

after 1986 during which the CFC was a

stock in one or more PFICs may

loss, but that loss cannot be

PFIC and while the shareholder held

provide its shareholders with a PFIC

recognized. In addition, there is no

the stock.

Annual Information Statement in which

•

basis adjustment for a loss.

The basis of the shareholder’s stock

it combines its own required information

•

is increased by the amount of the

and representations with the

After the deemed sale, the PFIC

deemed dividend. The manner in which

information and representations of any

becomes a pedigreed QEF with respect

the basis adjustment is made depends

lower-tier PFIC. Similarly, an

to the shareholder.

on whether the shareholder is a direct

intermediary through which a

or indirect shareholder. See

shareholder indirectly holds stock in

When To Make the Election

Regulations section 1.1291-9(f).

more than one PFIC may provide the

•

The shareholder’s holding period

This election must be made by the due

shareholder a combined Annual

(solely for purposes of applying the

date, including extensions, of the

Intermediary Statement. For more

PFIC rules after the deemed dividend

shareholder’s original tax return (or by

information, see Regulations section

election) begins on the qualification

filing an amended return within 3 years

1.1295-1(g)(4).

date.

of the due date of the original return) for

Documentation. For all taxable years

the tax year that includes the

When To Make the Election

qualification date.

subject to the section 1295 election, the

This election must be made by the due

shareholder must keep copies of all

date (including extensions) of the

Forms 8621, attachments, and all PFIC

How To Make the Election

shareholder’s original tax return (or by

Annual Information Statements or

filing an amended return within 3 years

To make this election:

Annual Intermediary Statements.

of the due date of the original return) for

1. Check box B in Part I,

Failure to produce these documents at

the tax year that includes the

the request of the IRS may result in

2. Enter the gain or loss on line 10f

qualification date.

invalidation or termination of the section

of Part IV, and

How To Make the Election

1295 election. See Regulations section

3. If a gain is entered, complete line

1.1295-1(f)(2)(ii). In rare and unusual

To make this election:

11 to report the tax and interest due on

circumstances, the IRS will consider

1. Check box C in Part I,

the excess distribution.

requests for alternative documentation

2. Enter the dividend on line 10e of

to verify the ordinary earnings and net

Part IV as an excess distribution, and

For more information regarding

capital gain of the PFIC. For more

3. Complete line 11 to figure the tax

making Election B, see Regulations

information, see Regulations section

and interest due on the excess

section 1.1291-10.

1.1295-1(g)(2).

distribution.

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Instructions For Form 8621 December 2011 Page 4

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