Necessary to file 8621s?

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ethanpurdy
Posts: 24
Joined: Tue Apr 28, 2015 10:29 pm

Necessary to file 8621s?

Post by ethanpurdy » Fri Jan 06, 2017 1:51 pm

Hello,

I've got a question about if I need to file 8621 this year.

In November/December 2015 I bought 8 ETFs (I didn't know about the PFIC rules... sigh). The total purchase amount was approximately $7,500 for all 8. I did not receive any distributions in 2015 and did not sell. Thus, I did not file any 8621.

In January 2016 I received a distribution for all 8. Around this point I learned about the PFIC rules and stopped buying until I could figure out what I had to do. Over the course of 2016 I sold all 8 ETFs. I received more distributions throughout the year on several of them before they were sold.

Throughout 2016 I sold each fund. 4 were sold at a capital loss. The other 4 trades ended up selling at a slight capital gain (~5$) because the trades took a few days to execute.

Am I correct in my understanding that the 4 that were sold at a capital loss no 8621 will need to be filed? The total value of investments was <$25,000 and they did not have excess distributions. For the 4 that were sold at a capital gain they had an excess distribution and I will need to file an 8621.

Thanks for the clarifications!

MGeorge
Posts: 309
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Mon Jan 09, 2017 4:46 pm

Hello,

Yes you are correct in my opinion. The 4 sold for a loss can simply go on schedule D (there was some analysis done in another thread that shows that PFICs sold for a loss with no election made, can go on schedule D as if they weren't PFICs).

The 4 sold for a gain would have to go on 8621. You wouldn't need to make any election, and if you did, it shouldn't change the result. Since you bought in Dec 2015, you might have 30 days worth of section 1291 tax (and throw back interest) but given the amounts of the gain - it should be tiny.

Remember to report the distributions on schedule B as an ordinary dividend (not qualified).

I hope this helps!
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MGeorge is neither an accounting nor taxation professional.

testone
Posts: 92
Joined: Mon Dec 01, 2008 10:05 pm

Post by testone » Mon Jan 09, 2017 8:32 pm

I agree with MGeorge.

ethanpurdy
Posts: 24
Joined: Tue Apr 28, 2015 10:29 pm

Post by ethanpurdy » Tue Jan 10, 2017 10:51 am

Thanks for the responses. I wrote a message through the Contact us with Serbinski and heard back from someone there a couple of days ago.

He said because the total value was <$25,000 no PFICs would need to be filed. Based on my understanding of 8621 I'm not sure this is right. It seems the exclusion criteria is: Under $25K AND had no excess distributions. Since I had capital gains on 4 funds I thought those would be considered to have had excess distributions and therefore an 8621 would need to be filed.

On another point, since both of you guys seem to be familiar with PFICs do you file 8621s annually? I'm looking to do the majority of my investing for retirement with Vanguard funds that provide QEF election information. As a Canadian resident with intentions to retire here (in ~30 years) I prefer to keep my investments in Canadian dollars instead of opening myself up to exchange rate risk by converting to USD and investing on US markets. With the QEF election the biggest downsides are the treatments of distributions as ordinary income and the recordkeeping and tax filing burdens. How much of a burden is the recordkeeping? I'd likely just hold 2 vangaurd PFICs in a taxable account (VCN and VXC).

Thanks so much!!

MGeorge
Posts: 309
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Tue Jan 10, 2017 3:24 pm

Hi ethanpurdy,

I've been filing 8621s now for 5 years. This year, I'm filing 8 of them on my tax return, and I just figured out that TaxAct won't let me efile more than 5. I'm trying to reduce the number of PFICs that I hold. What I try to do is only use a PFIC if I have to, and it seems that in most cases, I only really need Canadian based ETFs for Canadian equities and Canadian bonds. The rest, I'll generally use US based ETFs to reduce the number of PFIC filings.

A good passive portfolio is:
XIC - Canadian equities
IVV - not a PFIC - US equities
IEFA - not a PFIC - foreign equities.
XBB - Canadian bonds. I actually suggest a mark-2-market election for bonds because on average, there is very little capital appreciate expectation (statistically)

In a taxable account, there is a slight Canadian tax advantage to holding XEF (PFIC) instead of IEFA but it is only slight. You can tell I like Ishares, Vanguard has equivalents to the above as far as I know.

I hope this helps!
------------------------------
MGeorge is neither an accounting nor taxation professional.

testone
Posts: 92
Joined: Mon Dec 01, 2008 10:05 pm

Post by testone » Tue Jan 10, 2017 4:09 pm

"He said because the total value was <$25,000 no PFICs would need to be filed. Based on my understanding of 8621 I'm not sure this is right. It seems the exclusion criteria is: Under $25K AND had no excess distributions. Since I had capital gains on 4 funds I thought those would be considered to have had excess distributions and therefore an 8621 would need to be filed."

I agree with your analysis. Although you are exempt from the ANNUAL filing requirement due to the $25k de minimis exception, you are subject to the regular requirement to file because you recognized gains.

jeraniwog
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Joined: Tue Aug 25, 2020 3:21 am

Re: Necessary to file 8621s?

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