PFIC excess distribution triggered when vested?

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Lori
Posts: 12
Joined: Thu Jan 11, 2018 6:11 pm

PFIC excess distribution triggered when vested?

Post by Lori »

We are U.S. citizens with a PFIC in Canada, and have moved back to the U.S. No 8621's were previously filed (under $25,000, no withdrawals, no excess distributions).

I have read that reinvested dividends do not constitute an excess distribution if the rules of the PFIC do not allow you to withdraw anything. It said that the 'distribution' occurs when the funds are made available for withdrawal. In 2016, my husband left his employer and was then allowed to withdraw from this non-registered investment. Does this mean that the reinvested dividends from all prior tax years were deemed to be paid at that point, triggering an excess distribution (about $1,500)?

Should I amend the 2016 return to reflect this? No tax would be actually paid (after the FEIE we had $$$ left in the standard deduction). We cashed the account out in 2017, and will be doing an 8621 for the 2017 return for the entire disposition.
Lori
Posts: 12
Joined: Thu Jan 11, 2018 6:11 pm

Post by Lori »

Just to clarify -- we are using the default method (1291), and we paid tax to the U.S. each year on the reinvested dividends.
MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

Hi Lori,

The withdrawal in 2016 would not have made the reinvested dividends to be deemed paid. From all prior years, it sounds like you reported the dividends correctly.

The withdrawal in 2016 may have resulted in "gain treated as an excess distribution" Did you have a capital gain - in US dollar terms on the 2016 withdrawal?

Remember, the cost basis in this 1291 fund is the actual purchase cost in US dollars + the dividends used to buy more units (many folks forget this).

I hope this helps.

MGeorge.
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MGeorge is neither an accounting nor taxation professional.
Lori
Posts: 12
Joined: Thu Jan 11, 2018 6:11 pm

Post by Lori »

Thank you!

I used the word 'vested' in the topic title, but to be more accurate, I should say 'no longer locked in'. We didn't make a withdrawal in 2016, he just would have been allowed to for the first time. It didn't make sense to me that 'no longer locked in' would create an excess distribution (of money already taxed), but I've long since learned that whether something makes sense or not is not always a factor.

So. On to the 2017 disposition! Oh, joy!

Yes, I have a complete record in USD of reinvested, previously taxed dividends and interest, as well as the original purchases. Thanks again.
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