Tag Archives: PFIC

#PFIC and Canadian mutual funds revisted – Are they or aren’t they?

The purpose of this post is to highlight four articles on PFICs and how they may apply to the lives of Americans Abroad.

1. A post written by a CPA – Good practical advice on how to deal with them

The above tweet references a nice post by Tax Samurai. It’s a “no nonsense” post that discusses:

– the December 2013 8621 requirements (or not)

– whether a Canadian mutual fund is a PFIC or not (noting that the IRS has not ruled that a Canadian mutual fund is a PFIC)

Of particular interest is:

The remaining of this article is written under the assumption that Canadian mutual funds (treated as trusts under Canadian law) are PFICs. It is however noteworthy to note that while Canadian mutual funds definitively meet the “passive” part of the PFIC definition (income test & asset test discussed below), it is debatable that it is a corporation.

The IRS says that it is a corporation if it is not a trust (Section 301.7701-2(a))1

A Canadian mutual fund might or might not be an investment trust as described in 26 CFR 301.7701-4 (c)(1) – in which case the mutual fund will not be a PFIC2.

The IRS has not ruled on whether Canadian mutual funds are trusts or corporations in the context of PFIC (and the ruling found was a private ruling letter, hence even in exact same context, would not set precedent to other taxpayers) – so no precedent exists.

In 2 instances, the IRS ruled that Canadian mutual funds were corporations:

– Private Letter Ruling 200024024: http://www.irs.gov/pub/irs-wd/0024024.pdf

– Memo (UILC: 2103.00-00): http://www.irs.gov/pub/irs-wd/1003013.pdf

The IRS has not issued a revenue ruling on the subject so in theory it would still be possible to roll the dice on that but the above should show strong indication that the IRS sees most Canadian mutual funds as corporations.

Also, if unsure if you have a PFIC, you can make a protective statement (described under “Protective statement regime” on page 5 of the instructions http://www.irs.gov/pub/irs-pdf/i8621.pdf – if it later turn out to be a PFIC, the protective statement allows the taxpayer to make a late election)

2. A post written by a CPA – how to deal with the basic 1291 PFIC fund

3. Richardson submission to the Senate Finance Committee – Attempt to explain the punitive nature of PFIC Taxation/Confiscation

4. Stephanie Ray (a law student) writes on the policy aspects of treating Canadian mutual funds as PFICs

 

 

Related articles

The horrors of retirement planning for #Americansabroad – #PFIC edition

 

General discussion of how the PFIC rules work in theory:

Discussion of the incredible unfairness and stupidity of the PFIC rules in practice (don’t enter OVDP):

And a comment that says it all:

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Formulating the problem – Thoughts on the compliance dilemma for #Americansabroad – What you need to consider before contacting a lawyer

decision

The Reality of U.S. Citizenship Abroad

Nobody denied that the unintended targets of Congressional legislation aimed at those who supposedly “owe allegiance” to the USA, now assisted by craven foreign governments anxious lest their financial services entities lose access to the US market, are mostly unlikely to do anything at all. But the whole idea of universal self-assessment of taxation is to keep the taxpayer in an anxious condition, to make him overpay if possible, but at least not to underpay. Those now faced with an unprecedented, even retroactive, enforcement campaign and who must, if they wish to become compliant and avoid penalty or even prosecution (should they be identified in the future), sacrifice much of their wealth, even become insolvent.

Comment at the Isaac Brock Society blog – July 29, 2013

http://isaacbrocksociety.ca/2013/07/29/traumatized-by-the-irs-reaching-into-the-world-london-july-28-2-5-pm/comment-page-1/#comment-455276

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RBC publishes US tax planning guide for US citizens in Canada

Tax Planning for US Residents

After having read this you may conclude that you must either renounce or move to the U.S.

Obviously this is NOT legal advice, investment advice or any kind of advice. Furthermore, if it is accurate at all, times change. Make sure that you get up-to-date advice from your adviser.