MGeorge your knowledge of the PFIC is fascinating. My least favourite topic. I have read through most of the posts about PFIC but I haven't found my answer yet or I missed it.
Here is my scenario:
this is the first time I am filling out Form 8621 for 2 mutual funds owned by a US taxpayer. Although I have the PFIC annual information statements I would have to pick the mark to market election since I haven't filed this form previously. On form 8621, in Part I question 5 would I pick option (c) or (a) in my case. I believe there was a significant reinvestment in 2014 of $7,800 from one of the mutual funds. The only such distribution in the last three years. This was reported on a 1099-DIV and reported as ordinary dividend. I am not sure where it goes on my US form 1040 depending on the option I pick. Even if I pick (c) is this amount subject to 35% tax rate? Your kind response is greatly appreciated. Thank you
PFIC question - where is the excess dist. reported on 1040
Moderator: Mark T Serbinski CA CPA
Hi VaniB,
OK, so just so I have all of the correct information. I assume you are filing for the 2014 tax year and it sounds like the fund has been held for 3 or more years. Since 8621 was not filed in 2013 and earlier, the excess distribution regime applies to the earlier years only. In 2014 you plan to make the mark-to-market election. If you have the PFIC annual information statement, why not make a QEF election for 2014? You do not need any permission to go from the default "excess distribution regime" to the QEF regime. (you do need permission to go from mark-2-market to QEF)
I'll answer your questions assuming you will make a mark-to-market election for 2014 - but I suggest you strongly consider chosing QEF if you can (sounds like you can!).
Now, your specific questions:
Part 1. Choose 5(c). It applies to 2014 and it is PFIC specific data. The answer will be $0 in the first year of the mark-to-market election since there is no way you would have an "inclusion".
Excess distribution. If the distribution was made only in 2014 then, you do not have an excess distribution (good news!). However, you may still have a gain that is treated as an excess distribution. Once you make the mark-to-market election, the fund is deemed sold on Dec 31, 2013. Any gain from when the fund was bought, to when it was deemed sold is taxed at the highest rate. This means you have to complete Part V in addition to Part IV. Tax from excess distributions (or in your case gains from the pre-mark-2-market years) are calculated on 16e of 8621 then manually added to line 44 of form 1040, and the interest from excess distributions (or gains) is entered on 16f - and added to 1040, line 62.
The cost basis for your mark-to-market election comes from the average share value on Dec 31, 2013 for Part IV.
The re-invested dividend is treated as only ordinary dividend if the mark-to-market election is in effect. In your case, this is true for 2014. Then, you can put the dividend on Schedule B.
I hope this is helpful and makes sense.
Best Regards,
OK, so just so I have all of the correct information. I assume you are filing for the 2014 tax year and it sounds like the fund has been held for 3 or more years. Since 8621 was not filed in 2013 and earlier, the excess distribution regime applies to the earlier years only. In 2014 you plan to make the mark-to-market election. If you have the PFIC annual information statement, why not make a QEF election for 2014? You do not need any permission to go from the default "excess distribution regime" to the QEF regime. (you do need permission to go from mark-2-market to QEF)
I'll answer your questions assuming you will make a mark-to-market election for 2014 - but I suggest you strongly consider chosing QEF if you can (sounds like you can!).
Now, your specific questions:
Part 1. Choose 5(c). It applies to 2014 and it is PFIC specific data. The answer will be $0 in the first year of the mark-to-market election since there is no way you would have an "inclusion".
Excess distribution. If the distribution was made only in 2014 then, you do not have an excess distribution (good news!). However, you may still have a gain that is treated as an excess distribution. Once you make the mark-to-market election, the fund is deemed sold on Dec 31, 2013. Any gain from when the fund was bought, to when it was deemed sold is taxed at the highest rate. This means you have to complete Part V in addition to Part IV. Tax from excess distributions (or in your case gains from the pre-mark-2-market years) are calculated on 16e of 8621 then manually added to line 44 of form 1040, and the interest from excess distributions (or gains) is entered on 16f - and added to 1040, line 62.
The cost basis for your mark-to-market election comes from the average share value on Dec 31, 2013 for Part IV.
The re-invested dividend is treated as only ordinary dividend if the mark-to-market election is in effect. In your case, this is true for 2014. Then, you can put the dividend on Schedule B.
I hope this is helpful and makes sense.
Best Regards,
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MGeorge is neither an accounting nor taxation professional.
MGeorge is neither an accounting nor taxation professional.
No problem.
Yes - choose 5(b) for the QEF election. The $ amount for box 5(b) is the adjustment to the cost basis that is required if the QEF income deemed distributed is different from the amount actually distributed by the fund.
Don't forget to check box A in part 2 - and you should also check box D. Checking box D simplifies the accounting because it purges the excess distribution treatment for the earlier tax years.
Yes - choose 5(b) for the QEF election. The $ amount for box 5(b) is the adjustment to the cost basis that is required if the QEF income deemed distributed is different from the amount actually distributed by the fund.
Don't forget to check box A in part 2 - and you should also check box D. Checking box D simplifies the accounting because it purges the excess distribution treatment for the earlier tax years.
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MGeorge is neither an accounting nor taxation professional.
MGeorge is neither an accounting nor taxation professional.