As regards filing US form 8621 for Canadian mutual funds held by a US person:
(a) Canadian mutual funds (newly declared "corporations") are governed by US Code section 1298(f).
(b) The current US form 8621 (downloaded today) does not cover section 1298(f).
(c) IRS notice 2011-55 says that for people filing under the provisions of section 1298(f), form 8621 is suspended until a new version of form 8621 is issued.
Conclusions:
(1) US persons holding Cdn mutual funds cannot, at this point, file a form 8621 for those funds for tax year 2011.
(2) Any discussion of QEFs, or of the calculation of an adjusted cost base for a Cdn-mutual-fund-as-PFIC, is pointless because these notions apply to sections 1291-1297 and 1298(a)-(e), not to 1298(f). The regulations for 1298(f) are completely unknown.
Is that correct?
Another question: has the IRS given any hint that the initial ACB for a Cdn mutual fund (taken as a PFIC) will be *crystallized* to simply be the fund's market value on January 1, 2011 (since the fund was not a PFIC before that, so pre-2011 calculations are meaningless)?
Sec 1298(f): form 8621 suspended?
Moderator: Mark T Serbinski CA CPA
Re: point (a. Are you sure the irs regards Canadian mutual funds as falling under 1298(f). I was of the understanding that they are considering them as having been PFICs all along and thus require PFIC treatment. For example
(I am a dual US Cdn citizen living in Canada continually for 40 years)
I sold mutual funds in 2011 that had not previously reported on a 8621, I am reporting them as 1291 funds with the cost being original cost (eg in 2006) plus any reinvested income. Then the whole gain is allocated over the holding period at the punitive 35% rate.
I hope you are right. Do you have a source for your interpretation.
(I am a dual US Cdn citizen living in Canada continually for 40 years)
I sold mutual funds in 2011 that had not previously reported on a 8621, I am reporting them as 1291 funds with the cost being original cost (eg in 2006) plus any reinvested income. Then the whole gain is allocated over the holding period at the punitive 35% rate.
I hope you are right. Do you have a source for your interpretation.
@jenfin re point (a): a Private Foreign Investment Corporation is a corporation. Canadian mutual funds were not corporations in U.S. eyes until a court judgment in 2010. So they are now corporations and thus PFICs, but they weren't before.
The taxation of foreign mutual funds as PFICs began with the HIRE act (2010).
The instructions for form 8621 say the following:
New section 1298(f) was added by section 521 of the Hiring Incentives to Restore Employment Act of 2010. However, Notice 2011-55, 2011-29 I.R.B. 53, suspends the section 1298(f) reporting requirement for tax years beginning after March 18, 2010, for PFIC shareholders that are not otherwise required to file Form 8621 as provided in the Who Must File section below. The suspension of the section 1298(f) reporting requirement will remain in effect pending the release of a subsequent revision of Form 8621, modified to reflect the requirements of section 1298(f), as set forth in guidance to be included in future regulations.
What is your guess as to what that means?
I think it means that considering Canadian mutual funds to be PFICS began only recently, that the new regulations governing Canadian mutual funds are subject to the new U.S. Code section 1298(f), but these new regulations have not yet been written out by the IRS.
But I have *no* source for my interpretation.
I would like a convincing authoritative pronouncement.
The taxation of foreign mutual funds as PFICs began with the HIRE act (2010).
The instructions for form 8621 say the following:
New section 1298(f) was added by section 521 of the Hiring Incentives to Restore Employment Act of 2010. However, Notice 2011-55, 2011-29 I.R.B. 53, suspends the section 1298(f) reporting requirement for tax years beginning after March 18, 2010, for PFIC shareholders that are not otherwise required to file Form 8621 as provided in the Who Must File section below. The suspension of the section 1298(f) reporting requirement will remain in effect pending the release of a subsequent revision of Form 8621, modified to reflect the requirements of section 1298(f), as set forth in guidance to be included in future regulations.
What is your guess as to what that means?
I think it means that considering Canadian mutual funds to be PFICS began only recently, that the new regulations governing Canadian mutual funds are subject to the new U.S. Code section 1298(f), but these new regulations have not yet been written out by the IRS.
But I have *no* source for my interpretation.
I would like a convincing authoritative pronouncement.
thank you for your reply. I too would like an official pronouncement since this can get pretty expensive for those of us who unknowingly have been holding Cdn mutual funds and ETFs.
I am preparing 2011 return as if 1298(f) doesn't apply since I fear the IRS has no problem with retroactive application no matter how unfair. I spent over 6 mos on this stuff last year researching and going to many accountants and investment companies before finding in the end 2 that have been applying it for their clients for a couple of years. I marked a couple of funds to market last year using 1291 treatment to bring them into compliance..Then sold the balance in 2011 expecting I will have to use 1291 treatment going back to original purchase.
I am preparing 2011 return as if 1298(f) doesn't apply since I fear the IRS has no problem with retroactive application no matter how unfair. I spent over 6 mos on this stuff last year researching and going to many accountants and investment companies before finding in the end 2 that have been applying it for their clients for a couple of years. I marked a couple of funds to market last year using 1291 treatment to bring them into compliance..Then sold the balance in 2011 expecting I will have to use 1291 treatment going back to original purchase.
The Dexter Seasons 1-6 DVD Box Set is yet to come. At first Dexter Seasons 1-6 Box Set was shocked and wondered what was going to take over their old time slots. Then Everybody Loves Raymond complete box set 1-9 learned that Star Trek Next Generation, which has been syndicated more times than The Big Bang Theory Seasons 1-5 DVD Box Set, would be coming to G4. The Big Bang Theory Seasons 1-5 DVD was baffling to me since The Golden Girls Complete Seasons 1-7 DVD Box Set appeared that G4 was trying to shed its geeky image. But then The Big Bang Theory Seasons 1-5 Box Set remembered that Gossip Girl Seasons 1-5 Box Set is on SpikeTV and it all became clear. How I Met Your Mother dvd Box Set 1-7 is now trying to become a man's network, which explains why the Man Show and Eureka Box Set 1-4 have made their way onto the channel. The higher powers at Two and a Half Men Seasons 1-9 DVD Box Set also confessed that another name change for the network is likely in order and The Good Wife dvd will become a thing of the past. Folks, The Golden Girls Complete 1-7 Box Set isn't on G4 for one hour of the day or two. In a four-hour span in-between AOTS, the CSI Seasons 1-12 DVD Box Set will run for three hours. Shoot me now. Also workaholics dvd box set seems to be getting the boot I long feared this. South park Season 1-14 Box set will cease to exist on the TV schedule. Maybe Nikita dvd box set will return in the future, maybe not. Until then, True Blood complete Box Set 1-4 is dead to me. A spin-off of the CBS program Petticoat Junction 1963, The Office Complete Seasons 1-8 dvd Box Set surpassed its predecessor in audience popularity spending four of its six seasons as a Top 20 Nielsen-rated program. Its family-friendly humor puts Green Acres in the same nostalgic category as shows like Law and Order Los Angeles dvd box set, back when Smallville Seasons 1-10 DVD Box Set were all about humor and not as serious as Glee dvd box set would later become with the introduction of 1970s stalwarts MASH and All In The Family. The brainchild of creator The Mentalist Seasons 1-4 box set, writer for shows such as The Adventures Of Ozzie & Harriet and Petticoat Junction where Walt Disney dvd, Doris, Fred, and Smallville Seasons 1-10 Box Set make their first appearances, Green Acres' unique brand of comedy lives on through a successful and ongoing syndication run, and its catchy theme song even captured the pop culture for a second time when Old Navy incorporated True Blood complete dvd Box Set 1-4 into one of their trademark clothing commercials.