UPDATED PFIC AND CFC DEFINITIONS AND REPORTING RULES

The IRS has issued updated reporting regulations under Code Sections 1291, 1298, 6038 and 6046. A lot of the changes are technical definitions, and relate to updates from proposed regulations going back to 1992. A few highlights to alert readers to look further if these rules affect them, include:

a. Definitions of “pedigreed QEF,” “1291 fund,” and “shareholder” and “indirect shareholder” for Code Section 1291 purposes;

b. Rules relating to the application of the PFIC rules when estates and trusts are involved, including taking into account excess distributions under Code §1291;

c. Details regarding annual PFIC Form 8621 filing requirements, including how they relate to trusts and estates. Interestingly, an exception from reporting for PFIC stock that is worth under $25,000 ($50,000 for joint returns) has been provided; and

d. Updates to Form 5471 filing requirements.

TD 9650. Definitions and Reporting Requirements for Shareholders of Passive Foreign Investment Companies; Insurance Income of a Controlled Foreign Corporation for Taxable Years Beginning After December 31, 1986