Countless thousands of American citizens and green card holders in the UK and elsewhere globally invest in so-called “toxic assets”; such as UK unit trusts, investment trusts, ETFs and similar collective investment products.
Under US law every one of these falls into the category of a “Passive Foreign Investment Company” (or “PFIC”). The PFIC rules were signed into law by President Reagan in 1986 and have not changed significantly since. They have ever since created a tendency to make UK collective investments “unfriendly” for US persons.
For each PFIC for each PFIC that had income during a tax year that an IRS Form 8621 needs to be filed (there is no de minimis). This needs to calculate taxable income on “non-excess” distributions and also report tax and interest on the proportion of income that is considered an “excess distribution”. The maths involved is worse than any school exam I can remember!
Finally, after more than a quarter of century since the PFIC rules were enacted, I am promised software by my US tax software house that from January 2014 will handle the maths behind this mind-boggling piece of US tax legislation. Roll on January – time for a PFIC party!
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