PFIC reporting rules do not apply to certain marked-to-market stock

BY SALLY P. SCHREIBER, J.D.

On Wednesday, the IRS announced that it will amend the regulations governing the reporting requirements for U.S. persons who hold stock in passive foreign investment companies (PFICs). The amendments will provide that, if a taxpayer marks to market PFIC stock under Sec. 475 or any Code section other than Sec. 1296, the taxpayer will not be required to file Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund (Notice 2014-51). 

PFIC shareholders may be subject to one of three tax regimes: (1) the Sec. 1291 excess-distribution rules; (2) the Sec. 1293 qualified-electing-fund rules; or (3) the Sec. 1296 mark-to-market rules. All PFIC shareholders are currently required to file Form 8621 under Sec. 1298(f). The period of limitation for assessing tax for a tax year does not expire until three years after the date the IRS receives the form.

U.S. persons who hold PFIC stock that has been marked to market under what the IRS calls a “non-section 1296 MTM regime” are not subject to tax under any of the PFIC regimes. In recognition of this, the IRS will amend Temp. Regs. Sec. 1.1298-1T to provide an exception from the filing requirements for PFIC stock that is marked to market under a Code section other than Sec. 1296. The exception will not be available if the PFIC stock is not marked to market for any reason, including because it is treated as a hedge or an investment under Sec. 475.

The regulations will also be amended to provide that a shareholder that is not subject to Sec. 1298(f) information reporting with respect to PFIC stock that is marked to market under a non-Sec. 1296 MTM regime will not be required to take the value of that stock into account in determining whether it exceeds the threshold amounts for the reporting exceptions found in Temp. Regs. Sec. 1.1298-1T(c)(2)(i)(A)(1) or 1.1298-1T(c)(2)(iii). In addition, if, under the regulations, a U.S. person is not subject to the reporting requirements of Sec. 1298(f) with respect to PFIC stock for a tax year, a failure to file Form 8621 will not extend the statute of limitation for assessment.     

Although the IRS has not yet amended the regulations, taxpayers can apply these rules to tax years ending on or after Dec. 31, 2013.   

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

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