Most people who hold a non-US mutual fund or ETF have no idea it may be a passive foreign investment company in the eyes of the IRS. The PFIC Analyzer runs your investment through the two tests the IRS uses, the income test and the asset test, and tells you whether it likely qualifies as a PFIC. If it does, you will see what that means for Form 8621 and the steps to put it right.
Uses publicly available 10-K and 10-Q filings data
The tool keeps the process simple:
Enter the basic details about your foreign fund or corporation.
The analyzer applies the income test and the asset test, the same two screens the IRS uses to define a PFIC.
You get a clear read on whether your investment is likely a PFIC, along with what to check next.
It takes a few minutes and costs nothing. The goal is to give you a fast, honest answer to a question most tax software never raises.
A foreign corporation is a PFIC if it meets either of two tests in a given year. Meeting just one is enough.
Your fund is a PFIC if 75 percent or more of its gross income for the year is passive. Passive income includes dividends, interest, rents, royalties, and most capital gains. Because foreign mutual funds and ETFs exist to generate exactly that kind of income, they usually clear this bar.
Your fund is also a PFIC if at least 50 percent of its assets, measured on average over the year, are held to produce passive income. Cash waiting to be invested often counts. A fund can pass the income test in a slow year and still trip the asset test.
The complications live in the details: how foreign income is characterized, how assets are valued through the year, and how look-through rules apply when one entity holds another. Those nuances are where a wrong call gets expensive, and where the analyzer points you toward a closer review.
If the analyzer flags your investment as a likely PFIC, you may be required to file Form 8621 for that fund, for every year you held it. If it comes back unlikely, it is still worth a second look before you rely on that, since a single year's numbers can change the answer. The analyzer gives you a strong, fast indication. It is not a substitute for a filing determination on your actual return.
Owning a PFIC is not a problem you can ignore, but it is one you can fix. Form 8621 is filed per fund, per year, and two elections, the qualified electing fund election and the mark to market election, can soften the tax treatment. Both are time sensitive and usually have to be made in the first year you hold the fund, so the window matters. The right next step is a consultation to review your holdings, the elections still available to you, and any prior years that need to be corrected.
Under the default rules, PFIC gains are taxed at the highest ordinary income rate for every year you owned the fund, plus an interest charge that runs back to the first year. The favorable long-term capital gains rate does not apply. That is why catching PFIC status early, before the default regime locks in and elections expire, can change the outcome by a wide margin.
If the analyzer flagged a PFIC, or you are not sure where you stand, a short consultation tells you exactly what you are dealing with and what it takes to fix it.
