What is Form 8621 ?
This form is an information return by a shareholder of a PFIC or Passive Foreign Investment Company or QEF or Qualified Electing Fund. The form is intended to be filed to calculate the tax that is due on any “excess distribution” coming from a PFIC. Excess distribution is distribution following the first year that is more than 125% of the normal distribution in the preceding three years. Every distribution, however, is considered to be excess distribution and should therefore be reported in Form 8621.
Who should file ?
In majority of instances, if you are a US taxpayer that owns an indirect or direct interest in a PFIC, you should file Form 8621 if you have an excess distribution from the PFIC or if you opt to elect an existing taxation method. If you are a partner of a partnership owning a share of a PFIC or you’re a beneficiary of an estate or trust which has a share in a PFIC then you would have an indirect ownership in said PFIC.
How long does it take to prepare form 8621 ?
A different Form 8621 should be filed for every PFIC that you have an interest in. And filing this from is not easy. In fact the IRS itself has an estimated time needed to fill out the form. This is found at the bottom of the last page of the instruction on how to file Form 8621. And this is how it reads – the time required to file and finish Form 8621 will depend on a case to case basis. The approximate burden for you in filing this form is approved in OMB 1545-0074 and is contained in the estimates appearing in the IRS instructions for individual income tax return. And this is as follows:
- Recordkeeping – 13 hours and 37 minutes
- Gaining knowledge about the law requiring the filing of form 8621 – 8 hours and 38 minute
- Filing in the form and submitting it to the IRS – 9 hours and 14 minutes
This comes to a total of 31 hours and 29 minutes. Many tax consultants advise their clients who are tax payers of the United States to sell their foreign mutual funds since foreign mutual funds are virtually the same as PFICs or Passive Foreign Investment Companies. Their advice is to sell foreign mutual funds and purchase individual bonds and stocks instead.
Their advice is not related to any investment policy but in the difficulty, length of time and expense involved in preparing and filing form 8621. If you need help with a PFIC or would like advice on how to avoid having to use this form please contact us.