Notice 2014-28 - PFIC stock owned through tax-exempt organizations, accounts 

April 14:  The IRS today released an advance copy of Notice 2014-28 which announces that the regulations under section 1291 will be amended to provide that a “United States persons” that own stock of a passive foreign investment company (PFIC) through the following tax-exempt organizations or accounts will not be treated as a shareholder of the PFIC:
  • A tax-exempt organization
  • A state college or university
  • A section 403(b) or section 457(b) plan
  • An individual retirement plan or annuity
  • A qualified tuition program under section 529 or 530

The regulations incorporating the guidance described in today’s notice will be effective for tax years of United States persons that own stock of a PFIC through a tax-exempt organization or account ending on or after December 31, 2013.


Notice 2014-28 [PDF 17 KB] reports that the IRS and Treasury Department believe that the application of the PFIC rules to a United States person treated as owning stock of a PFIC through a tax-exempt organization or account would be inconsistent with the tax policies underlying the PFIC rules and the tax provisions applicable to tax-exempt organizations and accounts.


To illustrate this point, the IRS notice states that applying the PFIC rules to a United States person that is treated as a shareholder of a PFIC through the ownership of an individual retirement account (IRA) that owns stock of a PFIC would be inconsistent with the principle of deferred taxation provided by IRAs.


Accordingly, today’s notice announces that the definition of shareholder in the section 1291 regulations will be amended to provide that a United States person that owns stock of a PFIC through a tax-exempt organization or account is not to be treated as a shareholder of the PFIC.




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