PFIC excess distribution – Small Interest Exceptions to filing form 8621

Aug 23, 2014

If you invest in PFICs and file the PFIC form 8621 regularly, you might be interested in the PFIC excess distribution exemption the IRS offers. However, if you don’t know what PFICs are, check out our PFIC and form 8621 article.

Temp. Treas. Reg. §1.1298-1T (c) (2) (i) provides an exception to the requirement to file an annual report under section 1298 (f) and regulations in certain shareholders in respect of the interest held in a PFIC in which the shareholder is subject to tax as provided for in section 1291 (ie without QEF or MTM election is in effect with respect to the shareholder).

Related: As a direct PFIC shareholder, do I need to file form 8621?

Under Temp. Treas. Reg. § 1.1298-1T (c) (2) (i), this exception applies to a PFIC if:

(i) the shareholder is not subject to tax under section 1291 with respect to excess distributions from the PFIC, or gains with respect to the PFIC that are treated as excess distributions during the taxation of the shareholder (Temp Treas Reg § 1.1298-1T (c year) (2) (i) (B), …);

and (ii) either (A) the total value of all PFIC stock held by the shareholder at the end of the tax year of the shareholder does not exceed 25,000, or (B) the PFIC stock is owned by the shareholder by another $ PFIC, and the value of the portion of the shareholder’s interest in the PFIC higher in the lower-tier PFIC does not exceed $ 5,000. The $ 25,000 threshold in § 1.1298-1T (c) (2) (i) (A) (1) is increased to $ 50,000 for shareholders who file a joint statement.


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