SOURCE: US Tax Professionals

US Tax Professionals Logo

August 24, 2016 15:02 ET

US Tax Professionals Warns US Persons With Passive Foreign Investment Companies…Beware!

VANCOUVER, BC--(Marketwired - August 24, 2016) - US Tax Professionals release new blog cautioning citizens who own PFICs to report each investment annually

As a business that specializes in cross-border taxation, US Tax Professionals has an important reminder for American citizens who own PFICs. Each such investment must be reported annually on a separate IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund). In other words, a Form 8621 must be completed for each Canadian mutual fund owned. For more information go to: http://www.us-taxprofessionals.com/wordpress/

A PFIC (Passive Foreign Investment Company) is a non-US corporation that has 75% or more of its gross income consisting of passive income, or 50% or more of the average fair market value of its assets consisting of assets that produce passive income.

Passive income includes dividends, interest, rent, royalties, capital gains from the disposition of securities-and more.

For cross-border tax purposes, the definition of a US person is broad. Generally it includes US residents, US citizens, US green card holders, other persons with a substantial connection to the US, and certain entities organized within the US. It should be noted that all green card holders are considered US citizens regardless of their country of residence.

US taxation of PFICs can be punishing, although two elections may apply to modify this. The blog details how by using mark-to-market election and Qualified Electing Fund (QEF) election, investors can reduce the amounts owed to the Government.

Without making use of mark-to-market or QEF elections, any gains recognized on disposition of the PFIC shares and distributions received during the year greater than 125% of the average distributions received during the previous three years would be taxed as ordinary investment income.

This income would be considered earned over the holding period on a pro-rata basis. Additionally, the amounts allocated to prior tax years will be subject to US tax at the highest marginal rate as well as a deemed interest charge.

Anyone who holds PFICs should contact a cross border tax specialist who can help them reduce taxable rates in ways that are fully compliant with the law. Contact US Tax Professionals at (604) 949-1559.

About the Company

US Tax Professionals provide tax services for dual American and Canadian citizens in Vancouver. Founded in 2013, they specialize in taxation for US citizens and expats, taxation and accounting for business, cross border taxation for US and Canadian citizens, as well as accounting and taxation of alternative investments, including private equity funds and hedge funds.

Contact Information