I have that magical thing - a PFIC which comes with QEF reports. I've figured out how and where to deal with the ordinary earnings on form 8621.
The net capital gain was zero, and there were two distributions. From what I can tell, once I declare it a QEF I just report the earnings as income and don't need to do anything else.
Does that sound about right?
Mrs Jack
PFIC as QEF on form 8261 - where to put the numbers
Moderator: Mark T Serbinski CA CPA
You have two options regarding the QEF election: (1) just make a QEF election or (2) make a QEF election and a purging election. See elections A and D in Part II of Form 8621.
Under Option 1 (unpedigreed QEF), there is no gain recognized now on the PFIC but future gains on the sale of the QEF will be subject to the 1291 fund rules (ordinary income at highest rate plus interest charge).
Under Option 2 (pedigreed QEF), gain is recognized now on the PFIC and is subject to the 1291 fund rules (ordinary income at highest rate plus interest charge). However, future gains are taxed as capital gains.
Under Option 1 (unpedigreed QEF), there is no gain recognized now on the PFIC but future gains on the sale of the QEF will be subject to the 1291 fund rules (ordinary income at highest rate plus interest charge).
Under Option 2 (pedigreed QEF), gain is recognized now on the PFIC and is subject to the 1291 fund rules (ordinary income at highest rate plus interest charge). However, future gains are taxed as capital gains.
Hi Mrs. Jack,
If you make a QEF election for a PFIC, the actual distributions received from the fund do not have to get report. The amounts will reduce your USD cost basis in the units of the fund.
In 2016, you have to report the "ordinary earnings" on line 21 (other income) for the 1040. You said you don't have any "net capital gain" but if you did, it would go on Sch. D. These QEF amounts that you report, are added back on to your cost basis so that you don't report the income twice.
Also, remember testone's post about the "purging election". It is usually the simplest way forward. This means that it is treated as if you sold your units and re-bought them on Dec 31, 2015. I hope this helps.
Also don't forget - the numbers on the PFIC annual info statements usually have to be multiplied by the number of shares times the number of days the shares were held in the year. Be sure to read the instructions on the statement.
Best Regards!
If you make a QEF election for a PFIC, the actual distributions received from the fund do not have to get report. The amounts will reduce your USD cost basis in the units of the fund.
In 2016, you have to report the "ordinary earnings" on line 21 (other income) for the 1040. You said you don't have any "net capital gain" but if you did, it would go on Sch. D. These QEF amounts that you report, are added back on to your cost basis so that you don't report the income twice.
Also, remember testone's post about the "purging election". It is usually the simplest way forward. This means that it is treated as if you sold your units and re-bought them on Dec 31, 2015. I hope this helps.
Also don't forget - the numbers on the PFIC annual info statements usually have to be multiplied by the number of shares times the number of days the shares were held in the year. Be sure to read the instructions on the statement.
Best Regards!
------------------------------
MGeorge is neither an accounting nor taxation professional.
MGeorge is neither an accounting nor taxation professional.
Mgeorge - what a fantastic reply! May I send you your own weight in beer or chocolate!
:) The accountant - bless his cashmere socks - did include instructions for calculating the ordinary earnings.
One really numpty questions - what does cost basis refer to? The original purchase price, adjusted, and then used to calculate captial gains?
Mrs Jack
:) The accountant - bless his cashmere socks - did include instructions for calculating the ordinary earnings.
One really numpty questions - what does cost basis refer to? The original purchase price, adjusted, and then used to calculate captial gains?
Mrs Jack
Michele
Thanks Mrs Jack - but that would be a lot of beer and chocolate :)
The cost basis, is the amount you invested in that particular fund in USD. The QEF election makes things more complicated though. Since you don't have to report the actual distribution from the fund, this amount is subtracted from the cost basis (it's treated as if the fund gave you this money back).
The income amounts you have to report because they are on the QEF statement, this amount increases your calculated cost in the fund.
Let's say you invested $1333 Canadian in the fund and this got you 100 shares, it pays you a dividend of $66 CAD. Say you held it for the whole year. You get a PFIC statement that says:
Ordinary earnings = 0.002465 per share per day
net capital gain = 0 per share per day.
Your US cost basis is $1333 CAD times 0.75USD/CAD = $1000USD
minus the dividend received (-$66CAD = $50USD) = $950 USD
plus the QEF income reported, 0.002465 x 100shares x 365 days = $90.
Now your cost basis is $1040.
In almost all of the PFICs I've owned, there is usually capital gain amounts as well. These amounts get added to the cost basis as well.
See - that beer and chocolate thing encouraged me....
Cheers.
The cost basis, is the amount you invested in that particular fund in USD. The QEF election makes things more complicated though. Since you don't have to report the actual distribution from the fund, this amount is subtracted from the cost basis (it's treated as if the fund gave you this money back).
The income amounts you have to report because they are on the QEF statement, this amount increases your calculated cost in the fund.
Let's say you invested $1333 Canadian in the fund and this got you 100 shares, it pays you a dividend of $66 CAD. Say you held it for the whole year. You get a PFIC statement that says:
Ordinary earnings = 0.002465 per share per day
net capital gain = 0 per share per day.
Your US cost basis is $1333 CAD times 0.75USD/CAD = $1000USD
minus the dividend received (-$66CAD = $50USD) = $950 USD
plus the QEF income reported, 0.002465 x 100shares x 365 days = $90.
Now your cost basis is $1040.
In almost all of the PFICs I've owned, there is usually capital gain amounts as well. These amounts get added to the cost basis as well.
See - that beer and chocolate thing encouraged me....
Cheers.
------------------------------
MGeorge is neither an accounting nor taxation professional.
MGeorge is neither an accounting nor taxation professional.
MGeorge, you are a marvel. I really do appreciate your taking that time to write that out. Sometime once I see how something like that is done, lots of other pennies drop.
Once on a holiday in Belgium I did find myself having beer and chocolate at the same time. I was not sorry. :)
Thanks again.
Michele
Once on a holiday in Belgium I did find myself having beer and chocolate at the same time. I was not sorry. :)
Thanks again.
Michele
Michele