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.
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 default | QEF | Mark-to-market | |
|---|---|---|---|
| Tax treatment | Ordinary, top rate + interest, thrown back | Annual pass-through (ordinary + LT gain) | Annual FMV change as ordinary income |
| Needs fund statement | No | Yes (PFIC AIS) | No |
| Availability | Always (default) | If the fund provides an AIS | Marketable 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.
Educational estimate, not tax advice. Election choices have lasting consequences — confirm with a qualified professional.
Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.