Instructions for Form 8621 (Rev. December 2004)

Transcription

1 Instructions for Form 8621 (Rev. December 2004) Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund Section references are to the Internal Revenue Code unless otherwise noted. Department of the Treasury Internal Revenue Service in 3 above must file Form 8621 if the 25% (by value) of another corporation is a What s New pass-through entity fails to file such form PFIC, the foreign corporation is treated as Final regulations have been issued under or the U.S. person is required to if it held a proportionate share of the section 1296 and coordinating changes recognize any income under either assets and received directly its have been made to the regulations under section 1291 or section proportionate share of the income of the sections 1291 and These new rules Chain of ownership. If the shareholder 25%-or-more owned corporation. are reflected throughout the instructions owns one PFIC and through that PFIC CFC overlap rule. A 10% U.S. and are generally effective for tax years owns one or more other PFICs, the shareholder (defined in section 951(b)) beginning on or after May 3, See shareholder must either: that includes in income its pro rata share T.D. 9123, I.R.B. 907, for details. 1. File a Form 8621 for each PFIC in of subpart F income for stock of a CFC the chain or that is also a PFIC, generally will not be General Instructions 2. Complete Form 8621 for the first subject to the PFIC provisions for the PFIC and, in an attachment, provide the same stock during the qualified portion of information required on Form 8621 for the shareholder s holding period of the Who Must File each of the other PFICs in the chain. stock in the PFIC. This exception does Generally, a U.S. person that is a direct or not apply to option holders. For more indirect shareholder of a PFIC must file When and Where To File information, see section 1297(e). Form 8621 for each tax year in which that U.S. person: Attach Form 8621 to the shareholder s tax Note. The attribution rules of section Recognizes gain on a direct or indirect return and file both by the due date, 1298(a)(2)(B) will continue to apply even disposition of PFIC stock, including extensions, of the return. if the foreign corporation is not a PFIC Receives certain direct or indirect If you are not required to file an under the CFC overlap rule. distributions from a PFIC, or income tax return or other return for the. Is making an election reportable in Part tax year, file Form 8621 directly with the I of the form. Internal Revenue Service Center, P.O. Qualified Electing Fund (QEF) A separate Form 8621 must be filed Box 21086, Philadelphia, PA A PFIC is a QEF if the U.S. person who is for each PFIC in which stock is held. See a direct or indirect shareholder of the Chain of ownership below for specific Definitions and Special PFIC elects (under section 1295) to treat filing requirements. the PFIC as a QEF. See the instructions Rules Indirect shareholder. Generally, a U.S. for Election A on page 2 for information person is an indirect shareholder of a on making this election. Passive Foreign Investment PFIC if it is: Company (PFIC) Tax Consequences for 1. A direct or indirect owner of a A foreign corporation is a PFIC if it meets Shareholders of a QEF pass-through entity that is a direct or either the income or asset test described indirect shareholder of a PFIC, A shareholder of a QEF must annually below. 2. A shareholder of a PFIC that is a include in gross income as ordinary shareholder of another PFIC, or 1. Income test. 75% or more of the income its pro rata share of the ordinary 3. A 50%-or-more shareholder of a corporation s gross income for its taxable earnings and as long-term capital gain the foreign corporation that is not a PFIC and year is passive income (as defined in net capital gain of the QEF. that directly or indirectly owns stock of a section 1297(b)). The shareholder may elect to extend PFIC. 2. Asset test. At least 50% of the the time for payment of tax on its share of average percentage of assets the undistributed earnings of the QEF Interest holder of pass-through (determined under section 1297(f)) held (Election D) until the QEF election is entities. The following interest holders by the foreign corporation during the terminated. must file Form 8621 under the taxable year are assets that produce The shareholder may make a deemed circumstances described above: passive income or that are held for the sale election (Election B) or a deemed 1. A U.S. person that is an interest production of passive income. dividend election (Election C) to purge the holder of a foreign pass-through entity section 1291 fund years from its holding Basis for measuring assets. When that is a direct or indirect shareholder of a period. determining PFIC status using the asset PFIC, test, a foreign corporation may use Note. A shareholder that receives a 2. A U.S. person that is considered adjusted basis if: distribution from an unpedigreed QEF (under sections 671 through 679) the 1. The corporation is not publicly (defined in Regulations section shareholder of PFIC stock held in trust, traded for the taxable year and (j)(2)(iii)) is also subject to the and 2. The corporation is (a) a CFC or (b) rules applicable to a shareholder of a 3. A U.S. partnership, S corporation, makes an election to use adjusted basis. section 1291 fund (see page 2). trust (other than a trust that is subject to sections 671 through 679 for the PFIC Basis adjustments. A shareholder s Publicly traded corporations must use stock), or estate that is a direct or indirect basis in the stock of a QEF is increased fair market value when determining PFIC shareholder of a PFIC. by the earnings included in gross income status using the asset test. and decreased by a distribution from the Note. U.S. persons that are interest Look-thru rule. When determining if a QEF to the extent of previously taxed holders of pass-through entities described foreign corporation that owns at least amounts. Cat. No P

2 Section 1291 Fund 1. A national securities exchange that A PFIC is a section 1291 fund if: is registered with the Securities and Specific Instructions Exchange Commission (SEC), 1. The shareholder did not elect to 2. The national market system Important: All line references to Form treat the PFIC as a QEF or established under section 11A of the 1120 and Form 1040 are to the It is an unpedigreed QEF (as Securities and Exchange Act of 1934, or forms. Other entities should use the defined in Regulations section comparable line on their tax return (j)(2)(iii)). 3. A foreign securities exchange that is regulated or supervised by a governmental authority of the country in Address and Identifying Tax Consequences for Shareholders of a Section 1291 which the market is located and has the Number Fund characteristics described in Regulations section (c)(1)(ii). Address. Include the suite, room, or Shareholders of a section 1291 fund are other unit number after the street subject to special rules when they receive Stock in certain PFIC s described in address. If the Post Office does not an excess distribution (defined below) Regulations section deliver mail to the street address and the from, or dispose of the stock of, a section Any option on marketable stock shareholder has a P.O. box, enter the box 1291 fund. A distribution may be partly or described above to the extent provided in number instead. wholly an excess distribution. The entire Regulations section (e). Identifying number. Individuals should amount of gain from the disposition of a For additional information, including enter a social security number or a section 1291 fund is treated as an excess special rules for RICs that own PFIC taxpayer identification number issued by distribution. stock, see Regulations section the IRS. All other entities, enter employer Excess distributions. An excess identification number. distribution is the part of the distribution received from a section 1291 fund in the Tax Consequences current tax year that is greater than 125% If the PFIC shareholder elects to mark the of the average distributions received in stock to market, the shareholder either: Part I. Elections respect to such stock by the shareholder 1. Includes in income each year an A. Election To Treat the PFIC as during the 3 preceding tax years (or, if amount equal to the excess, if any, of the a QEF (Section 1295 Election) shorter, the portion of the shareholder s fair market value of the PFIC stock as of holding period before the current tax the close of the taxable year over the Who May Make the Election year). No part of a distribution received or shareholder s adjusted basis in such deemed received during the first tax year Generally, a U.S. person that owns stock stock or of the shareholder s holding period of the in a PFIC, directly or indirectly, may make 2. Is allowed a deduction equal to the stock will be treated as an excess Election A to treat the PFIC as a QEF. lesser of: distribution. Note. A separate election must be made a. The excess, if any, of the adjusted The excess distribution is determined for each PFIC that the shareholder wants basis of the PFIC stock over its fair on a per share basis and is allocated to to treat as a QEF. market value as of the close of the tax each day in the shareholder s holding year or Exception. A tax-exempt organization period of the stock. See section that is not taxable under section 1291 b. The excess, if any, of the amount of 1291(b)(3) for adjustments that are made may not make the election. In addition, a mark-to-market gain included in the gross when determining if a distribution is an tax-exempt organization that is a member income of the PFIC shareholder for prior excess distribution. of a domestic pass-through entity is not taxable years over the amount allowed Portions of an excess distribution are subject to a QEF election made by the such PFIC shareholder as a deduction for treated differently. The portions allocated pass-through entity. a loss with respect to such stock for prior to the days in the current tax year and the taxable years. Chain of ownership. In a chain of shareholder s tax years in its holding ownership, only the first U.S. person that period before the foreign corporation is a direct or indirect shareholder of the qualified as a PFIC (pre-pfic years) are See the instructions for Part III on PFIC may make the election. taxed as ordinary income. The portions page 5 for more information. Pass-through entities. A QEF election allocated to the days in the shareholder s Basis adjustment. If the stock is held made by a domestic partnership, S tax years (other than the current tax year) directly, the shareholder s adjusted basis corporation, or estate is made in the in its holding period when the foreign in the PFIC stock is increased by the pass-through entity s capacity as a corporation was a PFIC are not included amount included in income and shareholder of a PFIC. The entity will in income, but are subject to the deferred decreased by any deductions allowed. If include the QEF earnings as income for tax amount, as defined in section 1291(c). the stock is owned indirectly through the year in which the PFIC s taxable year See the instructions for Part IV on foreign entities, see Regulations section ends. The interest holder in the page (d)(2). pass-through entity takes the income into Exempt organizations. If a shareholder account under the rules applicable to of a PFIC is a tax exempt organization, inclusions of income from a pass-through the tax and interest rules of section 1291 Additional Information entity. will apply only if the dividend from the Required Affiliated groups. The common parent PFIC will be taxable to the shareholder of an affiliated group of corporations that under subchapter F. A shareholder of a PFIC must attach joins in filing a consolidated income tax certain information to Form This return makes the QEF election for all Mark-to-Market Election for information includes: members of the affiliated group that are PFIC Stock The number of shares in each class of shareholders in the PFIC. An election by A U.S. shareholder of a PFIC may elect to stock owned by the shareholder at the a common parent is effective for all mark the PFIC stock to market if the stock beginning of its tax year; members of the group that own stock in is marketable stock. Any changes in the number of shares the PFIC at the time the election is made Marketable stock. Marketable stock is: in each class of stock during its tax year or any time thereafter. PFIC stock that is regularly traded (as and the dates of such changes; and For more information on who may defined in Regulations section The number of shares in each class of make the election, see Regulations (b)) on: stock at the end of its tax year. section (d). -2-

3 When To Make the Election 3. The shareholder requests consent its shareholders with a PFIC Annual Generally, a shareholder must make the before the PFIC status issue is raised on Information Statement in which it election to be treated as a QEF by the audit; and combines its own required information due date, including extensions, for filing 4. The shareholder satisfies the and representations with the information the shareholder s income tax return for procedural requirements under and representations of any lower-tier the first tax year to which the election will Regulations section (f)(4). PFIC. Similarly, an intermediary through apply (the election due date ). See which a shareholder indirectly holds stock Retroactive election below for exceptions. Special Rules in more than one PFIC may provide the The foreign corporation will be treated as For rules relating to the invalidation, shareholder a combined Annual a QEF with respect to the shareholder for termination, or revocation of a section Intermediary Statement. For more the tax year in which the election is made 1295 election, see Regulations section information, see Regulations section and for each subsequent tax year of the (i). Also see Regulations section (g)(4). foreign corporation ending with or within a (c)(2) for rules relating to the Documentation. For all taxable years taxable year of the shareholder for which years to which a section 1295 election subject to the section 1295 election, the the election is effective. For more applies. shareholder must keep copies of all information on making a retroactive Forms 8621, attachments, and all PFIC election, see Regulations section For the tax year in which the section 1295 Annual Information Statements or Annual election is made, the shareholder must do Intermediary Statements. Failure to Retroactive election. A shareholder the following. produce these documents at the request may make a QEF election for a taxable of the IRS may result in invalidation or 1. Check box A in Part I of Form year after the election due date (a termination of the section 1295 election retroactive election), only if: See Regulations section (f)(2)(ii). 2. Complete the applicable lines of The shareholder has preserved its right In rare and unusual circumstances, the Part II. Include the information provided in to make a retroactive election under the IRS will consider requests for alternative the PFIC Annual Information Statement, protective statement regime (described documentation to verify the ordinary the Annual Intermediary Statement, or a below) or earnings and net capital gain of the PFIC. combined statement (see below) received The shareholder obtains the permission For more information, see Regulations from the PFIC. of the IRS to make a retroactive election section (g)(2). 3. Attach Form 8621 to a timely filed under the consent regime (described tax return. below). B. Deemed Sale Election Protective statement regime. Under For each subsequent tax year in which Who May Make the Election the protective statement regime, a the election applies and the corporation is shareholder may preserve the ability to treated as a QEF, the shareholder must: This election may be made by a U.S. make a retroactive election if the person that elects to treat a PFIC as a 1. Complete the applicable lines of shareholder: QEF for a foreign corporation s tax year Part II and following its first tax year as a PFIC 1. Reasonably believed, as of the due 2. Attach Form 8621 to a timely filed included in the shareholder s holding date for making the QEF election, that the tax return. period (an unpedigreed QEF). A foreign corporation was not a PFIC for its shareholder making this election is taxable year that ended during that year Annual Election Requirements of deemed to have sold the PFIC stock as of (retroactive election year); the PFIC or Intermediary the first day of the PFIC s first tax year as 2. Filed a Protective Statement (see PFIC Annual Information Statement. a QEF (the qualification date) for its fair below) with respect to the foreign For each year of the PFIC ending in a market value. corporation, applicable to the retroactive taxable year of a shareholder to which the election year, in which the shareholder section 1295 election applies, the PFIC Special Rules describes the basis for its reasonable must provide the shareholders with a For purposes of this election, the belief; PFIC Annual Information Statement. The following apply. 3. Extended, in the Protective statement must contain certain The gain from the deemed sale is taxed Statement, the periods of limitations on information, including: as an excess distribution received on the the assessment of taxes under the PFIC 1. The shareholder s pro rata share of qualification date. rules for all taxable years to which the the PFIC s ordinary earnings and net The basis of the stock is increased by protective statement applies; and capital gain for that taxable year or the gain recognized. The manner in which 4. Complied with the other terms and 2. Sufficient information to enable the the basis adjustment is made depends on conditions of the protective statements. shareholder to calculate its pro rata share whether the shareholder is a direct or of the PFIC s ordinary earnings and net indirect shareholder. See Regulations The Protective Statement must be capital gain for that taxable year. For section (f). attached to the shareholder s tax return other information required to be included The new holding period of the stock for the shareholder s first taxable year to in the PFIC Annual Information Statement begins on the qualification date. which the statement will apply. For required content of the statement and see Regulations section (g). The election may be made for stock on other information, see Regulations which the shareholder will realize a loss, Annual Intermediary Statement. If the section (c). but that loss cannot be recognized. In shareholder holds stock in a PFIC addition, there is no basis adjustment for Consent regime. Under the consent through an intermediary, an Annual a loss. regime, a shareholder that has not Intermediary Statement may be issued in After the deemed sale, the PFIC satisfied the requirements of the lieu of the PFIC Annual Information becomes a pedigreed QEF with respect protective regime may request that the Statement. For the definition of an to the shareholder. IRS permit a retroactive election. The intermediary, see Regulations section consent regime applies only if: (j). For details on the information When To Make the Election 1. The shareholder reasonably relied that should be included in the Annual This election must be made by the due on tax advice of a competent and Intermediary Statement, see Regulations date, including extensions, of the qualified tax professional; section (g)(3). shareholder s original tax return (or by 2. The interest of the U.S. government Combined statements. A PFIC that filing an amended return within 3 years of will not be prejudiced if the consent is owns directly or indirectly any shares of the due date) for the tax year that granted; stock in one or more PFICs may provide includes the qualification date. -3-

4 Attachments. The shareholder must E. Election To Recognize Gain To make this election: attach a statement to Form 8621 that on Deemed Sale of PFIC Stock demonstrates the calculation of its pro 1. Check box B in Part I, rata share of the post-1986 earnings and 2. Enter the gain or loss on line 10f of Who May Make the Election profits of the PFIC that are treated as Part IV, and This election may be made by: distributed to the shareholder on the 3. If a gain is entered, complete line A U.S. person that is a shareholder of a qualification date. The post-1986 earnings 11 to report the tax and interest due on foreign corporation that no longer and profits may be reduced (but not the excess distribution. qualifies as a PFIC under either the below zero) by the amount that the income or asset test of section 1297(a) or For more information regarding shareholder satisfactorily demonstrates A U.S. shareholder (as defined in making Election B, see Regulations was previously included in its income or in section 951(b)) that owns stock in a section the income of another U.S. person. The foreign corporation that is a CFC and is shareholder demonstrates this by not treated as a PFIC with respect to the C. Deemed Dividend Election including in the statement mentioned U.S. shareholder under section 1297(e). above the following information: Who May Make the Election The name, address, and identifying Such persons may elect to treat the This election may be made by a U.S. number of the U.S. person and the stock of the foreign corporation as sold on person that elects to treat a PFIC that is amount that was included in income; the last day of the last tax year of the also a CFC as a QEF for the foreign The tax year in which the amount was foreign corporation in which it was treated corporation s tax year following its first tax previously included in income; as a PFIC (termination date) for its fair year as a PFIC included in the The provision of law under which the market value on that date. shareholder s holding period (an amount was previously included in Special Rules unpedigreed QEF). income; A description of the transaction in The gain from the deemed sale is taxed A shareholder making this election is which the shareholder acquired the stock as an excess distribution. treated as receiving a dividend of its pro of the PFIC from the other U.S. person; Any shareholder who owns stock in a rata share of the post-1986 earnings and and CFC during its last taxable year as a profits (defined below) of the PFIC on the The provision of law under which the PFIC, may, alternatively, apply the qualification date (defined under the shareholder s holding period includes the deemed dividend election rules under instructions for Election B on page 3). The holding period of the other U.S. person. Election C. The deemed dividend is taxed deemed dividend is taxed as an excess as an excess distribution. distribution, allocated only to the days in For more information on making The basis in the stock is increased by the shareholder s holding period during Election C, see Regulations section the amount of the excess distribution which the foreign corporation qualified as taxed to the shareholder making a PFIC. For this purpose, the Election E. shareholder s holding period ends on the D. Election To Extend Time for The new holding period of the stock day before the qualification date. Payment of Tax begins on the date after the deemed sale. Election E may be made for stock on Special Rules Who May Make the Election which there would be a loss, but the loss For purposes of this election, the A shareholder of a QEF may make is not recognized. following apply. Election D to extend the time for payment The term post-1986 earnings and For more information on making this of the tax on its share of the undistributed profits means the undistributed earnings election, see Temporary Regulations earnings of the fund for the current tax and profits of the PFIC (as of the day sections T(a) and (b). year. If a U.S. partnership is a before the qualification date) accumulated shareholder of a QEF, the election is When To Make the Election in tax years beginning after 1986 during made at the partner level. This election is made either: which the CFC was a PFIC and while the shareholder held the stock. Special Rules 1. With the original return for the tax The basis of the shareholder s stock is If this election is made, interest will be year of the shareholder that includes the increased by the amount of the deemed imposed on the amount of the deferred last day of the last year of the foreign dividend. The manner in which the basis tax. corporation during which it qualified as a adjustment is made depends on whether The election cannot be made for any PFIC or the shareholder is a direct or indirect earnings on shares disposed of during the 2. By filing an amended return for the shareholder. See Regulations section tax year or for a tax year that any portion tax year that includes the date of the (f). of the shareholder s pro rata share of the deemed sale. The shareholder s holding period fund s earnings is included in income (solely for purposes of applying the PFIC under section 551 (relating to foreign rules after the deemed dividend election) personal holding companies) or section To make this election: begins on the qualification date. 951 (relating to CFCs). 1. Check box E in Part I and When To Make the Election 2. Enter the gain or loss on line 10f of When To Make the Election Part IV. If a gain, complete the rest of Part This election must be made by the due Generally, this election must be made by IV. date (including extensions), of the the due date, including extensions, of the shareholder s original tax return (or by shareholder s tax return for the tax year See Part V for annual reporting filing an amended return within 3 years of for which the shareholder reports the requirements for outstanding section the due date) for the tax year that income related to the deferred tax elections. includes the qualification date. F. Election To Mark-to-Market To make this election: PFIC Stock To make this election: 1. Check box D in Part I and 1. Check box C in Part I, 2. Complete lines 3a through 4c of Who May Make the Election 2. Enter the dividend on line 10e of Part II. Election F may be made by: Part IV as an excess distribution, and A U.S. person who owns (or is treated 3. Complete line 11 to figure the tax For more information on making as owning) marketable stock (defined on and interest due on the excess Election D, see Temporary Regulations page 2) in a PFIC at the close of such distribution. section T. person s tax year or -4-

5 A RIC that meets the requirements of the ordinary earnings and net capital gain Line 4b. Calculate your total tax as if section 1296(e)(2). of the QEF. The PFIC should provide your total taxable income did not include these amounts or information that will your share of the undistributed earnings For more information, see section help you determine your pro rata share. of the QEF (line 3e). Enter this amount on 1296 and Regulations section See Annual Election Requirements of the line 4b. See sections 1296(f) and (g) and Regulations sections (e) and PFIC or Intermediary on page 3. (h)(1)(ii) for information regarding stock Line 4c. For corporations, enter this tax Lines 1b and 2b. Your share of the owned through certain foreign entities. on Form 1120, Schedule J, in brackets to ordinary earnings and net capital gain of the left of the entry space for line 11. When To Make the Election the QEF is reduced by the amounts you Subtract that amount from the total of include in income under section 551 or This election must be made on or before lines 8 through 10 and enter the 951 for the tax year with respect to the the due date (including extensions) of the difference on line 11. QEF. Your share of these amounts may U.S. person s income tax return for the tax year in which the stock is marked to also be reduced as provided in section For individuals, enter this tax on Form market. A section 1296 election by a CFC 1293(g) in brackets to the left of the entry is made by its controlling shareholders. Line 1c. This amount is treated as an space for line 62. Subtract that amount For more information, see Regulations ordinary dividend on your tax return. from the total of lines 56 through 61, and section (h)(1)(ii). Once made, the enter the difference on line 62. election applies to all subsequent tax For individuals, include this amount in years unless the election is revoked or the total on Form 1040, line 9a. For terminated pursuant to Regulations corporations, include this amount in the section (h)(3). total on Form 1120, Schedule C, line 13. Part III. Gain or (Loss) Line 2c. See the instructions for the To make the election: Schedule D used for your tax return. From Mark-to-Market 1. Check box F in Part I, Portions of the net capital gain may have Election 2. Complete Part III to report the gain to be reported on different lines of or loss, and Schedule D, depending upon the Lines 7 Through 9 3. Complete Part IV if the tax and information provided by the QEF If the fair market value of the PFIC stock interest rules of section 1291 (explained concerning the section 1(h) categories of as of the close of the tax year is more on page 6) apply. net capital gains and amounts thereof, than the U.S. person s adjusted basis in derived by the QEF. See Regulations the stock, the excess is a gain and is Coordination of Election F with section section (a)(2) for 3 options a treated as ordinary income If Election F is made for any tax QEF may use to report and calculate year, then, except as provided in capital gain. Coordination rules for first year of election If the adjusted basis of the stock is below, do not complete Part IV of Form more than the fair market value, the Line with respect to any stock for which excess is allowed as a deduction, but only that election is made. If you receive a distribution from the QEF to the extent of the lesser of: during the current tax year, the 1. The amount of the excess (line 7) Coordination rules for first year of distribution is first treated as a distribution or election. See section 1296(j) and out of the earnings and profits of the QEF Regulations section (i) for 2. The excess of the amounts that accumulated during the year. If the total coordination rules that apply for the first were included in income under the amount distributed (line 3b) exceeds the year that election F is made. mark-to-market rules for prior tax years amount included in income (line 3a), the over the amounts allowed as a deduction Coordination of other mark-to-market excess is treated as distributed out of the under the mark-to-market rules for prior rules under chapter 1 of the Code with most recently accumulated earnings and tax years (line 8). See section 1296(d) section See Regulations section profits and is taxable to you unless you and Regulations sections (c)(3) (c)(4). satisfactorily demonstrate that the excess and (4). was previously included in the income of another U.S. person. To satisfactorily demonstrate this, the QEF shareholder This amount is treated as an ordinary must attach a statement to Form 8621 loss. that includes the information listed under Part II. Income From a QEF Attachments on page 4. Line 9. Corporations and individuals For any tax year in which the foreign should include the gain or (loss) on the corporation is not treated as a QEF Line 4 other income line of their tax returns. because it is not a PFIC under section Other entities should include this amount 1297(a), the shareholder is not required Line 4a. Enter the total tax on your total on the comparable line of their tax return. to complete Part II. However, the section taxable income (including your share of 1295 election is not terminated. If the undistributed earnings of the QEF) for the foreign corporation is treated as a PFIC in tax year (e.g., from Form 1120, Schedule If a CFC makes a mark-to-market any subsequent tax year, the original J, line 11, or Form 1040, line 62). election with respect to a PFIC in which it election continues to apply and the owns stock, any line 9 gain is treated as shareholder must include in Part II its pro For this purpose, undistributed foreign personal holding company income rata share of ordinary earnings and net earnings is the excess, if any, of the and any line 9 loss is treated as a capital gain and also must comply with amount included in gross income under deduction that is allocable to foreign the section 1295 annual reporting section 1293(a) over the sum of the personal holding company income. requirements. amount of any distribution and the portion Lines 1 and 2 of the amount attributable to stock in the For more information relating to QEF that you transferred or otherwise mark-to-market elections under section Lines 1a and 2a. Enter on lines 1a and disposed of before the end of the QEF s 1296, see Regulations sections a, respectively, your pro rata share of tax year. and

6 the extent that section 301(c)(1) is applicable, include the amount as a paid by the shareholder on the distribution (for example, withholding taxes) and, for Part IV. Distributions From dividend on your income tax return. For 10% or greater corporate shareholders, and Dispositions of Stock corporations, include this amount on any taxes deemed paid under section Form 1120, Schedule C, line 13. For 902. Both the direct and indirect foreign of a Section 1291 Fund individuals, include this amount on Form taxes must be creditable under general See Section 1291 Fund on page 2 for the 1040, line 9a (and, if applicable, on foreign tax credit principles and the definition of section 1291 fund and for a Schedule B (Form 1040), line 5). shareholder must choose to claim the brief summary of the tax consequences Excess distributions. If you received foreign tax credit for the current tax year. for shareholders of a section 1291 fund. more than one distribution during the tax The excess distribution taxes (the Complete a separate Part IV for each year with respect to the applicable stock, creditable foreign taxes attributable to an excess distribution. That is, if you receive the excess distribution is apportioned excess distribution) are determined by a distribution from a section 1291 fund among all actual distributions. Each apportioning the total creditable foreign with respect to shares for which you have apportioned amount is treated as a taxes between the part of the distribution different holding periods, complete lines separate excess distribution. that is an excess distribution and the part 10a through 10e separately for each Line 10f that is not. block of shares that has the same holding Gain recognized on the disposition of The excess distribution taxes are period ( applicable stock ). If you dispose stock of a section 1291 fund is treated as allocated in the same manner as the of stock in a section 1291 fund for which an excess distribution. Losses are not excess distribution is allocated. See you have different holding periods, recognized. Stock of a section 1291 fund Excess distributions on page 2. Those complete line 10f for each block of shares is considered disposed of if it is sold, taxes allocated to pre-pfic tax years and that has the same holding period. transferred, or pledged. the current tax year are taken into Line 10 account for the current tax year under the Line 11 general rules of the foreign tax credit. Lines 10a and 10b The excess distribution taxes allocated Lines 11a and 11b Enter your total distributions from the to a PFIC year only reduce the increase Determine the taxation of the excess section 1291 fund with respect to the in tax figured for that tax year (but not distribution on a separate sheet and applicable stock for the periods indicated. below zero). No carryover of any unused attach it to Form Divide the amount excess distribution taxes is allowed. Note. A distribution to a corporation on line 10e or 10f, whichever applies, by claiming the foreign tax credit for deemed the number of days in your holding When you dispose of PFIC stock, the paid foreign taxes includes foreign taxes period. The holding period of the stock is above foreign tax credit rules apply only deemed paid. See Form 1118, Foreign treated as ending on the date of the to the part of the gain that, without regard Tax Credits Corporations, Schedule C, distribution or disposition. to section 1291, would be treated under Part I, column 10, and Parts II and III, section 1248 as a dividend. Special rules apply to the holding column 8, for the gross-up amount. period if: Line 11e Line 10a. If the holding period of the The deemed dividend election (Election This amount is the aggregate increase in applicable stock began in the current C) is made (see the instructions for tax and is included on your tax return as year, there is no excess distribution and Election C on page 4) or additional taxes. Part IV should be completed as follows: The mark-to-market election (Election Enter on line 10a the total distributions For individuals, enter this amount on F) is made or was made in a prior year you received from the section 1291 fund Form 1040 to the left of the line 43 entry (see section 1291(a)(3)(A)(ii)). with respect to that stock during the space. Enter Sec next to the Determine the amount allocable to amount and include the amount as part of current tax year. If you did not dispose of each tax year in your holding period by that stock during the tax year, do not the total for line 43. adding the amounts allocated to the days complete the rest of Part IV. If you did For corporations, enter this amount on in each such tax year. Add the amounts dispose of that stock during the tax year, Form 1120, Schedule J, to the left of the allocated to the pre-pfic and current tax skip lines 10b through 10e and complete entry space for line 3. Enter Sec years. Enter the sum on line 11b. lines 10f and 11. next to the amount and include it as part This amount is treated as ordinary of the total for line 3. Other entities should If the holding period of the applicable income (e.g., individuals and corporations use the comparable line on their income stock began in the current tax year, the should enter this amount on the other tax return. line 10a amount is taxed according to the income line of their tax return). rules of section 301. To the extent that Line 11f section 301(c)(1) is applicable, include Line 11c Interest is charged on each net increase the amount as a dividend on your income Determine the increase in tax for each tax in tax for the period beginning on the due tax return. For corporations, include this year in your holding period (other than the date (without regard to extensions) of amount on Form 1120, Schedule C, line current tax year and pre-pfic years). An your income tax return for the tax year to 13. For individuals, include this line 10a increase in tax is determined for each which an increase in tax is attributable amount on Form 1040, line 9a (and, if PFIC year by multiplying the part of the and ending with the due date (without applicable, on Schedule B (Form 1040), excess distribution allocated to each year regard to extensions) of your income tax line 5). (as determined on line 11a) by the return for the tax year of the excess Line 10c highest rate of tax under section 1 or distribution. section 11, whichever applies, in effect for Divide the amount on line 10b by 3. If the For individuals, enter the interest at the that tax year. Add the increases in tax number of tax years in your holding bottom right margin of Form 1040, page 1 computed for all years. Enter the period preceding the current tax year is and label it as Sec interest. aggregate increases in tax (before less than 3, divide the amount on line 10b Include this amount in your check or credits) on line 11c. by that number. money order payable to the United States Line 11d Treasury. If you would otherwise receive Line 10e To figure the foreign tax credit, the a refund, reduce the refund by the interest Nonexcess distribution. The shareholder of a section 1291 fund due. nonexcess distribution is the lesser of the figures the total creditable foreign taxes For corporations, enter this interest at line 10a or line 10d. This amount is taxed attributable to the distribution. This the bottom right margin of Form 1120, according to the rules of section 301. To amount includes the direct foreign taxes page 1, and label it as Sec

7 interest. Include this amount in your events described on line 5. Earnings are payable to the United States Treasury. If check or money order payable to the treated as distributed out of the most you would otherwise receive a refund, United States Treasury. If you would recently accumulated earnings and reduce the refund by the interest due. otherwise receive a refund, reduce the profits. Accordingly, an event will first For individuals, enter the interest from refund by the interest due. terminate the most recently made line 8 at the bottom right margin of Form election. 1040, page 1, and label it as Sec An election may be terminated in interest. Also include this amount in your Part V. Status of Prior Year whole or in part depending on the event check or money order payable to the Section 1294 Elections and causing the termination. Examples are as United States Treasury. If you would follows. otherwise receive a refund, reduce the Termination of Section A distribution of earnings will terminate amount of the refund by the amount of an election to the extent the election is interest due Elections attributable to the earnings distributed. Lines 9 and 10. Complete lines 9 and 10 A loan, pledge, or guarantee by the Each person who has made a section only if you have partially terminated your QEF made directly or indirectly to the 1294 election must (1) annually report the section 1294 election. Enter on line 9 the electing shareholder or related person will status of that election and (2) report the part of the deferred tax outstanding after terminate an election to the extent of the termination of any section 1294 election the partial termination of the section 1294 undistributed earnings equal to the that occurred during the tax year. See election. This amount should equal line 3 amount loaned, secured, or guaranteed. Temporary Regulations section minus line 7. A disposition of stock will terminate all T(h). Enter on line 10 the accrued interest elections with respect to the undistributed Line 1. Enter the last day of each tax remaining after the partial termination of earnings attributable to that stock. year for which you made a section 1294 the section 1294 election. This amount A change in status of the QEF will election that is outstanding. Do not should equal line 4 minus line 8. terminate all elections. include an election made in the current For more information, see Regulations tax year. section T(e). Paperwork Reduction Act Notice. We Line 2. Enter the undistributed earnings ask for the information on this form to Line 7. Enter the deferred tax due from of the QEF for which the payment of tax carry out the Internal Revenue laws of the the termination of the section 1294 was extended by the section 1294 United States. You are required to give us election. The deferred tax entered on line election entered on line 1. If the election the information. We need it to ensure that 3 is due if the election was completely was partially terminated in a prior year, you are complying with these laws and to terminated. If the election was only enter the remaining undistributed allow us to figure and collect the right partially terminated, a proportionate earnings. amount of tax. amount of the deferred tax is due. That Line 3. Enter the tax for which payment amount is determined by multiplying the You are not required to provide the was extended by the section 1294 amount entered on line 3 by a fraction, of information requested on a form that is election entered on line 1. If the election which the numerator is the amount subject to the Paperwork Reduction Act was partially terminated in a previous tax entered on line 6 and the denominator is unless the form displays a valid OMB year, enter the balance of the deferred the amount entered on line 2. The control number. Books or records relating tax. deferred tax is due by the due date of the to a form or its instructions must be Line 4. Enter the accrued interest shareholder s income tax return (without retained as long as their contents may (determined under section 6621) on the regard to extensions) for the year of become material in the administration of deferred tax. This is the interest accrued termination. any Internal Revenue law. Generally, tax from the due date (not including returns and return information are When the election is terminated, extensions) of the return for the year for confidential as required by section corporations include the deferred tax as which the section 1294 election was part of the total for Form 1120, Schedule The time needed to complete and file made until the date the current year s J, line 11. Also enter the deferred tax to this form will vary depending on individual return is filed. the left of line 11 and label it as Sec. circumstances. The estimated average Line 5. Enter the event(s) that occurred 1294 deferred tax. time is: during the tax year that terminated one or For individuals, enter the deferred tax more of the section 1294 elections Recordkeeping...13 hr., 38 min. as part of the total for Form 1040, line 62. reported on line 1. A section 1294 Also enter the deferred tax to the left of Learning about the law or the election may be terminated voluntarily. line 62, and label it as Sec form... 6 hr., 27 min. However, an election will terminate deferred tax. automatically, in whole or in part, when Preparing and sending the Line 8. Enter the interest accrued on the form to the IRS... 6 hr., 57 min. any of the following events occur: An actual or deemed distribution of deferred tax. Interest accrues beginning on the due date (without regard to If you have comments concerning the earnings to which the election is extensions) of your tax return for the tax accuracy of these time estimates or attributable (a loan, pledge, or guarantee year in which the section 1294 election is suggestions for making this form simpler, by the QEF to or for the benefit of the made, and ending with the due date we would be happy to hear from you. You taxpayer may cause a deemed (without regard to extensions) of your tax can write to the Internal Revenue Service, distribution of the earnings); return for the tax year of the termination. Tax Products Coordinating Committee, A disposition of stock in the QEF, Interest is computed using the rates and SE:W:CAR:MP:T:T:SP, 1111 Constitution including a pledge by the taxpayer of methods under section Ave. NW, IR-6406, Washington, DC stock as security for a loan; or Do not send the tax form to this A change of status of the QEF (that is, For corporations, enter the amount of office. Instead, see When and Where To a foreign corporation that is no longer a section 1294 interest at the bottom right File on page 1. QEF or PFIC). margin of Form 1120, page 1 and label it Line 6. Enter the earnings distributed or as Sec interest. Also include this deemed distributed as a result of the amount in your check or money order -7-