PFIC (Passive Foreign Investment Company)

A PFIC is a non-US corporation that meets either the income test (≥75% passive income) or the asset test (≥50% of assets producing passive income). Almost every foreign mutual fund and foreign-listed ETF is a PFIC for US-person investors. Without an election the default §1291 "excess distribution" regime applies highest-marginal-rate tax to gains and large distributions, plus an interest charge using the IRS underpayment rate compounded daily back to the year the fund was bought. The two elections that escape §1291 are the Qualified Electing Fund (QEF, requires fund-provided PFIC Annual Information Statement) and the Mark-to-Market (MtM, only for publicly-traded PFICs). Each PFIC requires a separate Form 8621.