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Form 8621 · Elections

QEF vs mark-to-market: which PFIC election to make

The two elections that escape the punitive §1291 default — how each is taxed, what they require, and when each fits.

By Danilson Ramos · Founder, Atamatax

Updated July 2026

Tax review partner: onboarding in progress. This article has not yet been independently reviewed by a credentialed professional — every figure cites its IRS source so you can verify it directly.
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Two elections let you step out of the default §1291 regime: the Qualified Electing Fund (QEF, §1295) and mark-to-market (§1296). Each is taxed differently and has requirements.

QEF (§1295)

  • You include your pro-rata share of the fund's ordinary earnings (as ordinary income) and net capital gain (as long-term gain) each year.
  • Requires the fund to provide a PFIC Annual Information Statement — many non-U.S. funds don't, which is the practical catch.

Mark-to-market (§1296)

  • You mark the stock to fair market value each year, recognising the change as ordinary income (or a limited ordinary loss).
  • Generally available only for marketable (publicly traded) PFIC stock.
§1291 defaultQEFMark-to-market
Tax treatmentOrdinary, top rate + interest, thrown backAnnual pass-through (ordinary + LT gain)Annual FMV change as ordinary income
Needs fund statementNoYes (PFIC AIS)No
AvailabilityAlways (default)If the fund provides an AISMarketable stock only
Timing matters — the benefit of QEF/MTM is generally best when elected for the first year you hold the PFIC; a late election can require a purging step. Model before you choose.

Weigh the default against an election

Compare the §1291 cost with an election on your numbers. Atamatax is tax-preparation software, not a CPA firm, and this is not individualised tax advice.

Estimate §1291 vs an election
Educational estimate, not tax advice. Election choices have lasting consequences — confirm with a qualified professional.

Authorities cited

  • IRC §1291 — IRC §1291 — Interest on tax deferral (excess-distribution regime)
  • IRC §1295 — IRC §1295 — Qualified Electing Fund (QEF) election
  • IRC §1296 — IRC §1296 — Mark-to-market election for marketable PFIC stock
  • IRC §1297 — IRC §1297 — Definition of a passive foreign investment company
  • IRS Form 8621 — About Form 8621 — Information Return by a Shareholder of a PFIC or QEF

Primary sources (Cornell Legal Information Institute for the US Code and CFR; IRS.gov for forms, procedures, and treaty documents). This page is general information, not individualized tax or legal advice.

Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.

Frequently asked questions

What's the difference between QEF and mark-to-market?
QEF passes through the fund's ordinary earnings and capital gain to you annually but requires a PFIC Annual Information Statement; mark-to-market taxes the annual change in market value as ordinary income and is generally limited to marketable stock.
Why can't I always use QEF?
QEF requires the fund to supply a PFIC Annual Information Statement, and many non-U.S. funds don't provide one — which leaves the §1291 default or, for marketable stock, mark-to-market.
Which election is cheapest?
Which is cheapest depends on the fund's earnings, your holding period and gains; model the default §1291 against an election with the estimator before deciding.

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