When living in Canada, U.S. citizens usually have passive foreign investment companies (PFIC), such as Canadian mutual funds, that have specific yearly reporting requirements within the United States. The Internal Revenue Service (\u201cIRS\u201d) requires a U.S. person with passive offshore investments to report their earnings using IRS Federal Form 8621. PFIC reporting and cross-border tax preparation are crucial, as fines and penalties can be substantial if not adhered to prior to the taxpayer\u2019s tax deadline.<\/p>\n
In\u00a0this\u00a0article,\u00a0you\u00a0can\u00a0learn\u00a0the\u00a0basics\u00a0of\u00a0Form<\/u>\u00a0<\/u>8621<\/u><\/a>, Information Return by a Shareholder of a\u00a0Passive Foreign Investment Company or Qualified Electing Fund.<\/p>\n IRS Federal Form\u00a08621\u00a0is used to\u00a0report\u00a0earnings\u00a0on\u00a0passive\u00a0foreign\u00a0investment\u00a0companies\u00a0(PFICs)\u00a0such as \u00a0mutual\u00a0funds or holding companies\u00a0that reside outside of the United States. The IRS requires U.S.\u00a0citizens\u00a0to file Form 8621 if they are direct or indirect shareholders of PFIC.<\/p>\n PFICs are passive foreign investment companies. Common PFICs would\u00a0include, but are not limited to the following Canadian investments:<\/p>\n A\u00a0non-US company is a PFIC if it meets either of the tests below:<\/p>\n The IRS first made rules for PFICs to stop U.S. citizens from avoiding tax on passive income from non- U.S. companies. They did not want investors to convert income into capital gains that would be taxed at a lower more favorable tax rate. As of 2010, under The Foreign Account Tax Compliance Act (FATCA), non-U.S. financial institutions must report information on U.S. persons. For this reason, accurately filing the form with your U.S. income Tax return is crucial to avoid the IRS imposing fees or penalties.<\/p>\n A\u00a0U.S.\u00a0person that is a direct or indirect owner of passive investments located outside of the United States\u00a0files Form 8621.<\/p>\n The IRS also requires dual Canadian-U.S. citizen or green card holder living in Canada to report PFICs. If you have non-U.S. financial assets with Canadian banks or brokerage firms it will need to be reported to the IRS annually.<\/p>\n IRS Federal Form\u00a08621\u00a0is\u00a0complex\u00a0and\u00a0requires\u00a0a specific tax expertise that most tax advisors do not have\u00a0As cross border advisors we have the required experience and expertise to file the appropriate declarations with the IRS and recommend contacting \u00a0us\u00a0to\u00a0complete\u00a0these forms if you have these specific investment vehicles.<\/p>\n Please note that this material is not intended to provide tax advice, and IRS Federal Form 8621 is complex that requires specific tax expertise most tax advisors do not have. As cross-border<\/strong> advisors, we have the necessary experience and knowledge to file the appropriate declarations with the IRS. Contact us to complete these forms if you have these specific investment vehicles.<\/span><\/p>\n\n Click here to contact us<\/span>\n <\/a>\n\nWhat is Form 8621 used <\/b><\/strong>for?<\/b><\/strong><\/h3>\n
What are <\/b><\/strong>PFICs?<\/b><\/strong><\/h3>\n
\n
\n
Who needs to file <\/b><\/strong>it?<\/b><\/strong><\/h3>\n