What Is the Form 8621 Filing Threshold?
Clarify your IRS reporting duty for foreign investments. This guide explains the specific asset value thresholds and exceptions that govern Form 8621 filing.
Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, is used by U.S. taxpayers to meet reporting obligations for certain foreign investments. The form’s primary purpose is to report distributions and income from a Passive Foreign Investment Company (PFIC). Specific thresholds and conditions dictate whether a U.S. person must file, as these regulations are designed to prevent the deferral of U.S. tax on income from foreign passive investments.
Identifying a PFIC Shareholder
A foreign corporation is classified as a PFIC if it meets either an income test or an asset test. Under the income test, a corporation is a PFIC if 75% or more of its gross income is passive income, such as dividends, interest, or royalties. The asset test is met if at least 50% of the corporation’s assets produce or are held to produce passive income.
A U.S. person is considered a shareholder of a PFIC if they own shares directly or indirectly. Direct ownership involves holding shares in your own name, while indirect ownership occurs when owning PFIC shares through another entity, like a corporation, partnership, or trust. For example, a U.S. beneficiary of a foreign trust that owns PFIC shares is an indirect shareholder.
Filing Thresholds and Exceptions for Form 8621
A common exception relieves a shareholder from filing Form 8621 based on a de minimis rule. A shareholder is exempt if the total value of all their PFIC stock is $25,000 or less on the last day of the tax year. This threshold increases to $50,000 for married individuals filing jointly.
These thresholds are higher for U.S. taxpayers living abroad, increasing to $200,000 for single filers and $400,000 for those married filing jointly. However, this de minimis exception does not apply if the shareholder received an excess distribution or recognized a gain treated as such. The exception is also unavailable if the shareholder has made a Qualified Electing Fund (QEF) or Mark-to-Market (MTM) tax election.
Other exceptions exist. A filing requirement may not apply if the PFIC stock is held through a tax-exempt organization. An exception can also apply for certain dual resident taxpayers who are treated as nonresident aliens for U.S. tax purposes under a tax treaty.
Information Needed to Complete Form 8621
To complete Form 8621, a filer must gather several pieces of information. The form requires basic identification details for the shareholder and the PFIC, including names, addresses, and taxpayer identification numbers (TIN). You must also provide a description of your investment, which includes:
- The specific class of shares held
- The date the shares were acquired
- The total number of shares held at the end of the tax year
- The fair market value of the shares on the last day of the tax year
Shareholders who have made a QEF election must obtain a “PFIC Annual Information Statement” from the fund. This statement provides the shareholder’s pro-rata share of the PFIC’s ordinary earnings and net capital gain. Without this statement, the benefits of the QEF election cannot be claimed.
The Filing Process for Form 8621
The completed Form 8621 must be attached to the filer’s annual federal income tax return, such as Form 1040 for individuals, Form 1041 for trusts, or Form 1120 for corporations. The deadline for filing Form 8621 is the same as the due date for the associated tax return, including any approved extensions.
A separate Form 8621 must be filed for each PFIC in which the taxpayer is a shareholder. A filer cannot consolidate information for multiple PFIC investments onto a single form. This requirement for separate reporting ensures that the IRS receives detailed information for each distinct foreign investment.