On April 14, Treasury and the IRS announced they will amend the
regulations under Sec. 1291 to provide that a U.S. person who
indirectly owns stock of a passive foreign investment company
(PFIC) through a tax-exempt organization or account will not be
treated as a U.S. shareholder of the PFIC (Notice 2014-28).
In general, a foreign corporation is a PFIC if at least 75% of its
gross income is passive or at least 50% of its assets produce
passive income or are held for the production of passive income
(Sec. 1297(a)). Sec. 1291 imposes interest charges on U.S.
shareholders with respect to "excess distributions" from
PFICs (which are taxed as ordinary income) unless certain elections
are made to include income currently or mark to market (if
applicable). The consequences of the excess distribution regime can
be onerous if a PFIC is sold at a significant gain, because Sec.
1291(a)(2) treats the entire gain as an excess distribution.
To continue reading Dahlia Doumar and Carl Merino's article
from the August 2014 edition of the Journal of
Accountancy, please click here.
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