Three regimes, one fund, very different tax bills. QEF gives the cleanest result but is usually unavailable. Mark-to-market is the realistic escape for listed ETFs. §1291 is what punishes you for doing nothing. Here's how to choose.

You've confirmed you own a PFIC — a foreign mutual fund or ETF, very likely an Irish or Luxembourg UCITS. The next question is the one that actually determines your tax bill: under which of the three PFIC regimes will it be taxed? Get this right and a PFIC can be merely annoying; get it wrong and the same fund can cost you more in tax than it ever made.

This is a decision guide. We compare the three regimes — QEF (§1295), mark-to-market (§1296), and the default §1291 excess-distribution treatment — and give you a flow to follow for each fund you hold.

This is general information, not tax advice. The right election is fact-specific: it depends on the fund, your basis, your holding period, and your whole return. PFIC elections are also hard to undo. Confirm the choice for your own holdings before you file.

The three regimes at a glance

	QEF (§1295)	Mark-to-market (§1296)	§1291 (default)
How it's taxed	Your pro-rata share of the fund's ordinary income + net capital gain, annually — much like a US fund	Annual change in market value taxed as ordinary income each year; losses allowed only to extent of prior MtM gains	Gains & 'excess' distributions spread back over the holding period, taxed at the top rate, plus an interest charge
Character	Keeps capital-gain character on the fund's gains	All ordinary income — no capital-gain rates	All ordinary, at highest historical rates
Interest charge?	No	No (going forward)	Yes — the punitive feature
When you owe	Annually, on income whether or not distributed	Annually, on unrealised appreciation	On distribution or sale
Key requirement	Fund must issue a PFIC Annual Information Statement (AIS)	PFIC must be 'marketable' (regularly traded)	None — it's the fallback
Typical verdict	Best if available — usually it isn't	Realistic best for listed ETFs	Avoid; what you get by doing nothing

QEF (§1295): the cleanest result you usually can't have

A Qualified Electing Fund election makes the PFIC behave almost like a normal US fund: each year you include your share of the fund's ordinary earnings and net capital gain, and — crucially — the fund's long-term gains keep their capital-gain character. No interest charge, no excess-distribution spreading. For a long-term holding, QEF is generally the best of the three.

The AIS problem

The catch is fatal in practice for most expats: QEF requires a PFIC Annual Information Statement from the fund — a specific document telling you your share of ordinary earnings and net capital gain for the year. US-marketed PFICs sometimes provide one; ordinary European UCITS providers almost never do. No statement, no QEF. So while QEF is the textbook-best election, the funds most expats actually hold simply don't support it.

Check before assuming. A minority of funds (including some aimed at US investors and certain fund-of-funds) do publish PFIC Annual Information Statements. If yours does, QEF is usually worth electing — ideally from the first year you owned the fund, because a late QEF election on an appreciated PFIC needs a 'purging' step to clean up the §1291 taint.

Mark-to-market (§1296): the realistic escape for listed ETFs

If your PFIC is marketable — regularly traded on a qualifying exchange, which most listed UCITS ETFs are — you can elect mark-to-market. Each year you treat the increase in the fund's value as ordinary income, and decreases as ordinary losses (but only to the extent of previously-included MtM gains). It escapes the §1291 interest charge going forward, which is the whole point.

Pro: available without any cooperation from the fund — you just need it to be exchange-traded. No AIS required.
Pro: stops the punitive interest charge from compounding on a fund you want to keep.
Con: you pay tax annually on unrealised gains — a cash-flow drag in up years.
Con: everything is ordinary income; you lose the lower long-term capital-gains rate even on multi-year holds.
Watch-out: electing MtM on an already-appreciated PFIC triggers a one-time §1291 'cleanup' on the built-in gain in the election year.

For the typical European UCITS ETF holder who can't get a QEF statement but does hold an exchange-traded fund, mark-to-market is usually the live choice versus exiting the position.

§1291: the punitive default you fall into by doing nothing

Make no valid election and you're in §1291 — the excess-distribution regime. On a sale or an 'excess' distribution, the gain is allocated rateably across your entire holding period; each prior year's slice is taxed at that year's highest ordinary rate; and an interest charge is added as though you'd underpaid in each of those years. The longer you held — especially an accumulating fund that distributed nothing — the worse it gets.

There is essentially no scenario where §1291 is chosen on purpose. It's what you end up with by accident. The reason to understand it is to know how much you're avoiding by electing — or by exiting early. Our free §1291 PFIC estimator models the excess-distribution charge so you can see, illustratively, what the default costs on your own holding.

Illustrative, not a filing figure. The estimator gives a directional number based on the inputs you provide; your actual §1291 liability depends on prior-year rates and the full return. Use it to compare options, not to file.

A decision flow, per fund

Work through this for each PFIC separately — the right answer can differ fund by fund:

Does the fund issue a PFIC Annual Information Statement? If yes, electing QEF (ideally from year one) is usually the best outcome — stop here.
No AIS — is the fund marketable (regularly exchange-traded)? If yes, compare electing mark-to-market (keep and elect) against selling and reinvesting into US-domiciled funds. The §1291 estimator helps you size both.
Not marketable and no AIS? Your realistic options are to exit the position (absorb the §1291 hit once, then go clean) or keep it under §1291 and accept the compounding charge — usually you exit.
Either way, mind the timing. A first-year MtM or late QEF election on an appreciated PFIC triggers §1291 cleanup on the built-in gain, so model the election year before you commit.

Each elected or disposed PFIC is reported on its own Form 8621 — one per fund, per year. Start by confirming which holdings are even PFICs with the free PFIC checker, then model each one with the §1291 estimator.

How the §1291 estimator helps you choose

The decision between MtM-and-hold and sell-now usually comes down to one comparison: how much the §1291 interest charge will cost if you keep deferring, versus the tax of taking the gain today. The estimator lets you plug in your holding period, basis, and current value to see the directional §1291 cost — the number that tips you toward electing, exiting, or holding. It's a planning aid, not a return preparer; the actual forms come when you build the return.

Stop guessing which PFIC election to make

Atamatax flags every PFIC in your portfolio, lets you choose QEF, mark-to-market or §1291 per holding, and generates the Form 8621 for each — up to 25 per return. Start with the free checker, model the cost, then build the return. Draft free; pay only when you finalise.

Run the free PFIC check

Authoritative sources

IRS — About Form 8621
IRS — Instructions for Form 8621 (QEF, mark-to-market, and §1291 mechanics)
Cornell LII — 26 U.S. Code §1291 — Excess distributions & interest
Cornell LII — 26 U.S. Code §1295 — Qualified electing fund
Cornell LII — 26 U.S. Code §1296 — Mark-to-market election

Shaped by recurring election questions from US-expat investors on r/USExpatTaxes. Last reviewed June 2026 — verify availability and current rates for your specific funds before electing.

QEF vs Mark-to-Market vs §1291: Which PFIC Election Should You Make?