Form 8621 for U.S Expatriates and Passive Foreign Investment Companies

Tax forms for American expatriates living abroad, such as Form 2555 (Foreign Earned Income Exclusion) and Form 1116 (Foreign Tax Credit), can be relatively easy to understand. However, if you have shareholder investments, you may also be required to complete disclosure forms that must be filed according to specific tax rules, such as Form 8621.

Form 8621 is a disclosure form required of those who own shares of PFICs or QEFs. If you are a shareholder of a company or fund that fits the definition of a Passive Foreign Investment Company (“PFIC”) or Qualified Electing Fund (“QEF”), then you may need to add Form 8621 to your to-do list.

Key Takeaways

• US citizens who are shareholders in a passive foreign investment company (PFIC) must file Form 8621 annually.
• Form 8621 is a tax Form used by shareholders to report certain types of Passive Foreign Investment Company income.
• Form 8621 is required to be filed by both direct and indirect shareholders.

Do I Need to File IRS Form 8621?

To qualify as a PFIC or QEF, the corporation in question must be foreign. “Foreign” means that the entity was formed in a jurisdiction other than the US or one of its territories.

As we will discuss in more detail, a foreign corporation may be classified as a passive foreign investment company (PFIC) if it meets either an income test or an asset test.  If at least 75% of the corporation’s annual gross income is investment-type income such as interest, dividends, capital gains, royalties and the like then it is a PFIC.  A corporation meets the asset test if at least 50% of the average percentage of its assets produce or are held to produce passive income.

So, do I need to file IRS Form 8621?

If you are a direct or indirect shareholder of a Passive Foreign Investment Company (PFIC), you must file IRS Form 8621 for each year in which you hold stock in the PFIC.:

• Recognize gain or loss on the direct or indirect disposition of stock in a PFIC, or
• You may be liable for certain taxes if you receive certain distributions from a PFIC., or
• File Form 8621 to report an election..

Form 8621 Explained: What Exactly Is Indirect Ownership?

Indirect ownership requires more explanation. The IRS Form 8621 is the document that must be submitted to report direct and indirect ownership of a PFIC. if you are a:

A U.S. person is considered to own an interest in a PFIC if that person owns (directly or through one or more entities) an interest in another entity that is a shareholder of a PFIC, or if that person owns 50% or more of the stock of a foreign corporation that is not a PFIC and that directly or indirectly owns stock of one or more PFICs.