Regulations - Annual filing requirements for PFIC shareholders 

December 30: The Treasury Department and IRS today released for publication in the Federal Register temporary regulations (T.D. 9650) and, by cross-reference, proposed regulations (REG-140974-11) as guidance:

  • On determining the ownership of a passive foreign investment company (PFIC)
  • Concerning the annual filing requirements for PFIC shareholders
  • With respect to an exclusion for certain filing requirements for shareholders that constructively own interests in certain foreign corporations

The temporary regulations [PDF 239 KB] and the proposed regulations [PDF225 KB] are effective December 31, 2013 (i.e., the date when they will be published in the Federal Register).

Filing requirements

Today’s temporary regulations generally adopt portions of regulations that were proposed in 1992, with certain revisions being made to reflect statutory changes made during the intervening years.

However, a third release today (also to be published in the Federal Register on December 31, 2013) withdraws a portion of the 1992 proposed regulations relating to the definitions of the terms “pedigreed qualified electing fund (QEF)” and section 1291 fund, shareholder and indirect shareholder. Read the partial withdrawal of notice of proposed rulemaking (REG-113350-13) [PDF 216 KB].

A provision of the Hiring Incentives to Restore Employment Act of 2010 added section 1298(f) to the Code to require a “United States person” that is a shareholder of a PFIC to file an annual report containing information as may be required by the Secretary.

The IRS then issued two notices—first, Notice 2010-34 and then Notice 2011-55—that effectively suspended filing requirements for certain PFIC shareholders not otherwise required to file Form 8621 Information Return by a Shareholder of a Passive Investment Company or Qualified Electing Fund.

Notice 2011-55 stated that PFIC shareholders with Form 8621 reporting obligations (as provided in the then-current Instructions to Form 8621) were required to continue filing Form 8621 with an income tax or information return filed prior to the release of the revised Form 8621.

Notice 2011-55, however, provided that following the release of revised Form 8621, PFIC shareholders for which the filing of Form 8621 had been suspended would be required to attach Form 8621 for the suspended tax year to their next income tax or information return required to be filed with the IRS. Notice 2011-55 also provided that a failure to furnish Form 8621 for a suspended tax year could result in the extension of the statute of limitations for the year under section 6501(c)(8), and penalties could apply. Read TaxNewsFlash-United States (June 21, 2011) [PDF 43 KB].

The preamble to today’s temporary regulations states that since Notice 2011-55 was issued, the IRS and Treasury have determined that it is not necessary to file a Form 8621 under section
1298(f) for suspended tax years. Accordingly, these regulations provide that eligible PFIC shareholders are not required to file Form 8621 under section 1298(f) with respect to tax years ending before December 31, 2013 (i.e., the date of the regulations’ publication in the Federal Register).

Today’s temporary regulations also set forth the filing requirements under section 1298(f), including the time and manner for filing Form 8621 for tax years ending on or after December 31, 2013.

The temporary regulations affect certain shareholders that rely on a constructive ownership exception to the requirement to file Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations.

Comments requested

The preamble states that before the proposed regulations are adopted as final regulations, Treasury and the IRS will give consideration to any comments that are timely submitted to the IRS. Comments are requested on all aspects of the proposed rules.

Comments and requests for a public hearing must be received by a date that is 90 days after the December 31, 2013 publication date.

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