Passive Foreign Investment Company

[dimejr]

I have a client that has passive foreign investment and must file a Form 8621 PFIC. We are in disagreement as to whether income from this type of investment is taxable. My opinion is that this type income is fully taxable, he disagrees.
Is anyone out there famaliar with the Form 8621? Any input would be greatly appreciated!

dimejr

[Brian EA]

I have a client that has passive foreign investment and must file a Form 8621 PFIC. We are in disagreement as to whether income from this type of investment is taxable. My opinion is that this type income is fully taxable, he disagrees.
Is anyone out there famaliar with the Form 8621? Any input would be greatly appreciated!

dimejr

My software do no carry that form.

[Bees Knees]

Form 8621 instructions"

"General Instructions
Who Must File
Generally, a U.S. person that is a direct or
indirect shareholder of a PFIC must file
Form 8621 for each tax year in which that
U.S. person:
• Recognizes gain on a direct or indirect
disposition of PFIC stock,
• Receives certain direct or indirect
distributions from a PFIC, or
• Is making an election reportable in Part
I of the form."

Without reading any further, this form appears to apply to a U.S. person. So in what situation is a U.S. person not required to report income? U.S. persons must pay tax on world wide income, unless they qualify for the foreign earned income exclusion, which does not appear to apply in this case.

[dimejr]

Passive Foreign Investment Company

Thanks, Bees Knees,
That is my contention also. That client and I parted ways. I hate to lose clients, but there are times when you have no choice.

dimejr

[Bees Knees]

I had a client come in once asking to help with his son's situation. His son, as U.S. citizen, had been living and working in Germany for 5 years. The IRS sent him a notice that he had not been filing tax returns. They wanted to know why the IRS would care, because they had heard the earnings in Germany would not be subject to tax. I said a U.S. citizen is subject to U.S. tax on worldwide income, and that there is a foreign earned income exclusion that would have wiped out the tax. The problem is that in order to take advantage of the foreign earned income exclusion, you have to file a timely tax return including extensions. There are exceptions, but failing to file is not one of them.

They didn't like that answer either.