Reporting PFIC income when not required to file Form 8621

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nelsona
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Reporting PFIC income when not required to file Form 8621

Post by nelsona »

There are a few exceptions to filing Form 8621 for PFICs.
If one meets one of those exceptions, for example, having less than $25K is such investments, are they still required to pay yearly tax on the undistributed income, if, for example, they use the Mark-to- Market reporting method?
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
CdnAmerican
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Re: Reporting PFIC income when not required to file Form 8621

Post by CdnAmerican »

Good question! I thought that you had to pay these mark-to-market, regardless of the amount kept in the fund. But I'm really not sure.
Not a professional opinion.
nelsona
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Re: Reporting PFIC income when not required to file Form 8621

Post by nelsona »

yeah. All the writing I see on this focuses on getting out of filing the Form, but IMO you still have to go through the trouble of calculating and paying tax on these each year. and if you do QEF, then you lose the de minimis exemption.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
MGeorge
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Re: Reporting PFIC income when not required to file Form 8621

Post by MGeorge »

I agree with nelsona- one still needs to do the calculation so avoiding the form doesn't save much. If one takes advantage of the exemption from filing form 8621, then the default tax treatment applies. Dividends are reported as ordinary dividends (not qualified). Unrealized gains do not need to be reported because once the fund is sold for a gain, this triggers the requirement to file 8621 and treat the gain as an excess distribution (a la section 1291). Also, if a dividend in a later year is 1.25x bigger than the average dividend in the past 3 years, this also triggers the need to file form 8621 and treat the excess distribution (interest charge, highest tax rate, etc).
The only time mark-to-market applies is when the mark-to-market election is made. Then, since an election has been made, form 8621 has to be filed annually.
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MGeorge is neither an accounting nor taxation professional.
MGeorge
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Location: Canada

Re: Reporting PFIC income when not required to file Form 8621

Post by MGeorge »

By the way, if one doesn't file form 8621, and the annual dividends are consistent enough not to trigger an "excess distribution", then the fund is sold for a loss, then form 8621 never needs to be filed for that specific fund. This happened to me once.
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MGeorge is neither an accounting nor taxation professional.
Canadianinus
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Joined: Mon Feb 10, 2020 2:23 pm

Re: Reporting PFIC income when not required to file Form 8621

Post by Canadianinus »

Hi MGeorge, thank you so much for all info you post. My question is:
1. I only have reinvested dividends from the mutual fund I hold in my TFSA/RESP, and the total value never exceed 50,000 (file income tax jointly), do I still need to file the form 8621?
2. I never file 8621 since I moved to US from Canada in 2011, for my 2011 income tax, my accountant didn't included the reinvested dividends as my income in 1040, he mentioned that re-invested dividend is not counted as distribution. Since then, when I filed my income tax for 2012-2018, I didn't include re-invested dividend in 1040. Should I amend all 2011-2018 form 1040 when I file 8621 for those years?


Thank you so much.
MGeorge
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Location: Canada

Re: Reporting PFIC income when not required to file Form 8621

Post by MGeorge »

Hi Canadianius,

Sorry for the late response. To answer your questions:
1. The fact that the dividends were reinvested has no effect for PFIC purposes. If one of the dividends is considered an excess distribution, then form 8621 needs to be file. An excess distribution is a distribution that is 1.25 times larger than the average distribution for the past 3 years.
2. The re-invested dividends should have been reported as ordinary dividends (and possibly a portion might have been an excess distribution). To comply full, you would have to amend your returns. Note that reinvested dividends is treated as buying more shares, so it increases your cost. If you sold all the shares on a previous return, you might take the position that there is no net difference to your taxable income. I am assuming that the mistake of not reporting dividends also means that the reinvested amounts weren't added to the cost basis of your shares (I hope this makes sense).

Best Regards.
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MGeorge is neither an accounting nor taxation professional.
GlobalCitizen
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Joined: Sat Jan 03, 2015 8:58 pm

Re: Reporting PFIC income when not required to file Form 8621

Post by GlobalCitizen »

I'm working through this at the moment for a small mutual fund RESP (helping someone backfile a few years).

The account is well below 25k, and it is the taxpayers only PFIC investment.

However, it had monthly contributions/reinvested distributions, so I wanted to be sure there were no excess distributions.

After running it through Form 8621 calculator, it appears that there are no excess distributions for any of the open years.

So if I am reading the instructions correctly:

- 8621 is not required. However, the income still needs to be reported, and I want to make sure I'm doing this correctly.

Do I simply list the income as Dividend income on Schedule B and line 9a?

On Schedule B, should I list the name of the RESP (which is on FBAR), or the name of the mutual fund (which is not listed anywhere else?)
GlobalCitizen
Posts: 41
Joined: Sat Jan 03, 2015 8:58 pm

Re: Reporting PFIC income when not required to file Form 8621

Post by GlobalCitizen »

I'm also a bit confused about what exactly constitutes an excess distribution.

I was under the impression that excess distributions meant the dollar value of distribution. For example, say in a fund:

Average of distributions received from 2017-2019 was $50.00. I multiply this by 1.25 to get $62.50

In 2020, the fund receives $65.00 of distributions. Therefore, there is $2.50 of excess distribution, and the return should be filed.

However, when I run all the numbers through 8621 calculator, it tells me that there are no excess distributions for the year. Looking through the calculation worksheets, it appears that "excess distributions" takes into consideration the unit prices rather than the actual dollar amount. Is that so?
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