What is the benefit of a QEF election?
The QEF election involves including the ordinary income and capital gains in the shareholder’s income each year –even if the money was not actually received. Making the election will allow gains on disposition of pedigreed QEFs to be taxed as capital gains when they are sold.
Can a US partnership make a QEF election?
section 1.1298-1(b)(2)(ii) if the U.S. partnership timely files Form 8621 and the U.S. partnership makes a QEF election with respect to the PFIC. In contrast to a U.S. partnership, a foreign partnership is treated as an aggregate of its owners and is not classified as a shareholder for this purpose.
Who makes QEF election?
The election may be made by a shareholder that holds its PFIC stock in bearer form and by both direct and indirect shareholders (Reg. §1.1295-1(d) and (j) ; Reg. §1.1291-9(j)(3) ).
How do I report QEF income?
To make the initial QEF election for an asset, the taxpayer must file Form 8621 with his or her tax return and check the “Election to Treat the PFIC as a QEF” box. If this tax year is not the year in which the investment was first purchased, the taxpayer must also check the “Deemed Sale Election” box on Form 8621.
How are PFICs taxed?
Instead, income from PFICs is now taxed at not just any ordinary income tax rate but at the highest one. This income is automatically taxed at the maximum tax rate normally reserved for only the highest earners. At the time of publication, this tax rate was 37%.
When must a QEF election be made?
Under Code section 1295(b)(2), a QEF election may be made for a taxable year at any time on or before the due date (determined with regard to extensions) for filing the return for the taxable year.
Can you make a QEF election on an amended return?
As noted above, a PFIC shareholder who makes an election to treat a PFIC as a QEF after the corporation’s first year as a PFIC and a shareholder of a former PFIC are allowed to make a purging election on an amended return.
Can a tax exempt organization make a QEF election?
A tax-exempt organization that is not taxable under section 1291, pursuant to § 1.1291-1(e), with respect to a PFIC may not make a section 1295 election with respect to that PFIC. In addition, such an exempt organization will not be subject to any section 1295 election made by a domestic pass through entity.
How do I get rid of PFIC?
The only way you can stop the application of the PFIC rules to the stock of a former PFIC is to make a purging election. There are two possible purging elections that a shareholder could make to remove the PFIC treatment: a deemed sale election or a deemed dividend election.
How do I avoid PFIC status?
If the startup meets either of the PFIC tests (the asset test or income test), one method of avoiding the PFIC rules is to ensure that all U.S. shareholders own their interest through a corporation holding a 10% or more interest in the startup.
Can subpart F income be a loss?
‘” category.” A loss with respect to activities and transac- tions that would not give rise to Subpart F income likewise cannot reduce Subpart F income, e.g., a tested loss. foreign personal holding company income category.
Is subpart F income subject to NIIT?
Definition of “Net Investment Income” for purposes of 3.8% NIIT does not include Subpart F and excludes income from an active business.
What is a pedigreed QEF election?
QEF regime is treated as a tax-free return of capital.³ 31. If a shareholder makes a QEF election for its first PFIC year, then the foreign corporation is referred to as a “pedigreed QEF” and the standard PFIC regime described above will not apply to that particular shareholder.
What is a PFIC purging election?
Purging Elections Under Section 1298(b)(1) A PFIC shareholder may make certain purging elections with respect to a foreign corporation that qualifies as a “former PFIC” or a “section 1297(e) PFIC.” These purging elections result in the foreign corporation no longer being treated as a PFIC as to the shareholder.
What is qualified deficit Subpart F?
A qualified subpart F deficit is the amount of a current-year E&P deficit attributable to activities that, when profitable, give rise to certain types of subpart F income. The qualified deficit is available to reduce income from activities in the future that would otherwise be taxable under the subpart F rules.
What is the NIIT tax rate?
3.8 percent
A 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates, and trusts that have net investment income above applicable threshold amounts.
What is the 3.8 surtax?
A flat surtax of 3.8% applies to net investment income of most married couples who have more than $250,000 of adjusted gross income (AGI). For most single filers, the threshold is $200,000. The 3.8% levy applies only to the investment income above the threshold for single/married filers.
Who has to pay NIIT?
What is the Net Investment Income Tax (NIIT)? The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.
What is a QEF election under 1295?
QEF – Qualified Electing Fund The QEF or Qualified Electing Fund election under §1295 is optional method of taxation available for certain PFICs. This election most closely mirrors the US taxation of US mutual funds and allows for capital gains treatment of some of the income as long as any prior §1291 gain has been dealt with.
What is QEF election in a PFIC?
The character of the PFIC’s income as QEF election. chain of ownership. In the case of a foreign nongrantor trust, the U.S. beneficiary of the trust makes the election. The election is made on a shareholder by shareholder basis. So a PFIC, therefore, others.
How do I make a QEF election for an asset?
To make the initial QEF election for an asset, the taxpayer must file Form 8621 with his or her tax return and check the “Election to Treat the PFIC as a QEF” box.
How to defer payment of tax on undistributed income of QEF?
There is a separate election which can be made to defer payment of tax on undistributed income of a QEF. The character of the PFIC’s income as QEF election. chain of ownership. In the case of a foreign nongrantor trust, the U.S. beneficiary of the trust makes the election. The election is made on a shareholder by shareholder basis.