If you're a foreign national living in the United States and you hold a mutual fund, hedge fund, or private equity interest outside the US, there's a very good chance you own what the IRS calls a Passive Foreign Investment Company — or PFIC. The rules around PFICs are among the harshest in the entire US tax code, and getting them wrong can be enormously expensive.
In part 2 of Navigating the Expatriate Tax Maze, Dave Zydek of BDO walks through:
What actually makes a foreign investment a PFIC (the income test and the asset test)
The three tax regimes you can fall under: the default method, the QEF election, and the mark-to-market election
Why the default method can push your effective tax rate above 40% or even 50%
The Form 8621 disclosure requirements — and why missing one can leave your US tax return open to audit indefinitely
Common exceptions, including PFICs held inside treaty-recognized retirement plans like UK SIPPs
Practical, plain-English guidance for anyone managing foreign investments while subject to US tax.
Brought to you by CAW Network USA in partnership with BDO.
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