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USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
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I have a few problems with my return (extension till 15

Customer Question

Hello my name is ***** ***** I have a few problems with my return for 2014 (extension till 15 Oct.) and possibly 2012 & 13 for which I must submit 1040x's. I have three foreign mutual funds, two of which are most likely PFICS . I can't determine this myself and the company has not answered my e-mail and regestered letter request for information so I assume that they are PCICs and proceeding that way..
The first problem is with Form 8621. - More than one 1291 fund in possession at the end of the year. Total of all 1291 funds less than $25,000/50,000 limit. One fund has excess distributions for the year. Which funds (all or just the one with the excess distribution) have to be reported for the year?
Submitted: 2 years ago.
Category: Tax
Expert:  USTaxAdvising replied 2 years ago.

Hello Frank,

I would be surprised if not all the foreign mutual funds are not PFICs. Note that all of the funds/PFICs have to be reported for the year, even if there are no excess distributions to include under IRC 1291. Note that IRC 1298(f) requires disclosure of all PFICs held regardless of the $ value of ownership.

Having said the above, is there any chance that these mutual funds are publicly traded and therefore qualify for the mark to market election of IRC 1296?

Customer: replied 2 years ago.
Hello UnsignedFrom i8621 pub. IRS pg 4:
"shareholder’s PFIC stock is $25,000 or less. A shareholder is not required to complete Part I with respect to a specific section 1291 fund if the shareholder meets the $25,000 exception on the last day of the shareholder’s taxable year. For purposes of determining whether a shareholder satisfies the $25,000 threshold, the shareholder takes into account all PFIC stock (QEFs, section 1291 funds, and PFIC stock subject to a section 1296 mark-to-market election) owned directly or indirectly other than PFIC stock owned through another U.S. person or PFIC stock owned through another PFIC. Shareholders filing a joint return have a combined threshold of $50,000 instead of $25,000 for purposes of this exception.
For more information, see Treasury Regulation section 1.1298-1T(c)(2)"I don't think we can continue with this. Please refund my deposit.Regards, Frank
Expert:  USTaxAdvising replied 2 years ago.


Sorry, I should have read your question more thoroughly regarding the reporting of a "1291 fund". I don't generally see people with less than 25K so I have not seen this exception apply very often. But you are absolutely correct.

My main focus here for you is the IRC 1296 Mark to Market election. This election, if available to you, would save you a significant amount of taxes. Note that the election must be made on a timely filed income tax return and you have to make the election in the first year of ownership. You have to file Form 8621 to make this election.

Best regards,

Customer: replied 2 years ago.
The question is still not answered the question remains do I have to report all funds or just the fund that has Excess Distributions? I do not want to make a Mark to Market election for many reasons. I think I will seek another source for my question.
Expert:  USTaxAdvising replied 2 years ago.

Hello Frank - you would just report the 1291 fund that has the excess distributions. Your other 1291 funds would not be required to be reported if you meet the 25K value exception.

I appreciate your decision not to make the mark to market election, but in all honesty, if the election is available, you will be paying significantly more tax as a 1291 fund. 1296 provides for capital gain or loss on disposal whereas 1291 funds only allow for ordinary gain. No losses are allowed on disposal of 1291 funds.

Best regards,