Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund

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Instructions for Form 8621

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Instructions for Form 8621

Department of the Treasury
Internal Revenue Service

(Rev. February 2008)
(Use with the December 2004 revision of Form 8621.)
Return by a Shareholder of a Passive Foreign Investment Company or Qualified
Electing Fund
Section references are to the Internal
Revenue Code unless otherwise noted.

required to recognize any income under
section 1291.

General Instructions

Chain of ownership. If the
shareholder owns one PFIC and
through that PFIC owns one or more
other PFICs, the shareholder must
either:
1. File a Form 8621 for each PFIC
in the chain or
2. Complete Form 8621 for the first
PFIC and, in an attachment, provide
the information required on Form 8621
for each of the other PFICs in the
chain.

Who Must File
Generally, a U.S. person that is a direct
or indirect shareholder of a PFIC must
file Form 8621 for each tax year in
which that U.S. person:
• Recognizes gain on a direct or
indirect disposition of PFIC stock,
• Receives certain direct or indirect
distributions from a PFIC, or
• Is making an election reportable in
Part I of the form.
A separate Form 8621 must be filed
for each PFIC in which stock is held.
See Chain of ownership below for
specific filing requirements.
Indirect shareholder. Generally, a
U.S. person is an indirect shareholder
of a PFIC if it is:
1. A direct or indirect owner of a
pass-through entity that is a direct or
indirect shareholder of a PFIC,
2. A shareholder of a PFIC that is a
shareholder of another PFIC, or
3. A 50%-or-more shareholder of a
foreign corporation that is not a PFIC
and that directly or indirectly owns stock
of a PFIC.
Interest holder of pass-through
entities. The following interest holders
must file Form 8621 under the
circumstances described above:
1. A U.S. person that is an interest
holder of a foreign pass-through entity
that is a direct or indirect shareholder of
a PFIC,
2. A U.S. person that is considered
(under sections 671 through 679) the
shareholder of PFIC stock held in trust,
and
3. A U.S. partnership, S corporation,
trust (other than a trust that is subject to
sections 671 through 679 for the PFIC
stock), or estate that is a direct or
indirect shareholder of a PFIC.
Note. U.S. persons that are interest
holders of pass-through entities
described in 3 above must file Form
8621 if the pass-through entity fails to
file such form or the U.S. person is

When and Where To File
Attach Form 8621 to the shareholder’s
tax return and file both by the due date,
including extensions, of the return at
the Internal Revenue Service Center
where the tax return is required to be
filed.
If you are not required to file an
income tax return or other return for the
tax year, file Form 8621 directly with
the Internal Revenue Service Center,
Ogden, UT 84201-0201.

Definitions and Special
Rules
Passive Foreign Investment
Company (PFIC)
A foreign corporation is a PFIC if it
meets either the income or asset test
described below.
1. Income test. 75% or more of the
corporation’s gross income for its
taxable year is passive income (as
defined in section 1297(b)).
2. Asset test. At least 50% of the
average percentage of assets
(determined under section 1297(e))
held by the foreign corporation during
the taxable year are assets that
produce passive income or that are
held for the production of passive
income.
Basis for measuring assets. When
determining PFIC status using the
asset test, a foreign corporation may
use adjusted basis if:
Cat. No. 10784P

1. The corporation is not publicly
traded for the taxable year and
2. The corporation is (a) a CFC or
(b) makes an election to use adjusted
basis.
Publicly traded corporations must
use fair market value when determining
PFIC status using the asset test.
Look-thru rule. When determining if a
foreign corporation that owns at least
25% (by value) of another corporation
is a PFIC, the foreign corporation is
treated as if it held a proportionate
share of the assets and received
directly its proportionate share of the
income of the 25%-or-more owned
corporation.
CFC overlap rule. A 10% U.S.
shareholder (defined in section 951(b))
that includes in income its pro rata
share of subpart F income for stock of a
CFC that is also a PFIC, generally will
not be subject to the PFIC provisions
for the same stock during the qualified
portion of the shareholder’s holding
period of the stock in the PFIC. This
exception does not apply to option
holders. For more information, see
section 1297(d).
Note. The attribution rules of section
1298(a)(2)(B) will continue to apply
even if the foreign corporation is not a
PFIC under the CFC overlap rule.

Qualified Electing Fund
(QEF)
A PFIC is a QEF if the U.S. person who
is a direct or indirect shareholder of the
PFIC elects (under section 1295) to
treat the PFIC as a QEF. See the
instructions for Election A on page 2 for
information on making this election.

Tax Consequences for
Shareholders of a QEF
• A shareholder of a QEF must

annually include in gross income as
ordinary income its pro rata share of
the ordinary earnings and as long-term
capital gain the net capital gain of the
QEF.
• The shareholder may elect to extend
the time for payment of tax on its share
of the undistributed earnings of the
QEF (Election D) until the QEF election
is terminated.

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• The shareholder may make a

deemed sale election (Election B) or a
deemed dividend election (Election C)
to purge the section 1291 fund years
from its holding period.
Note. A shareholder that receives a
distribution from an unpedigreed QEF
(defined in Regulations section
1.1291-9(j)(2)(iii)) is also subject to the
rules applicable to a shareholder of a
section 1291 fund (see below).
Basis adjustments. A shareholder’s
basis in the stock of a QEF is increased
by the earnings included in gross
income and decreased by a distribution
from the QEF to the extent of
previously taxed amounts.

Section 1291 Fund
A PFIC is a section 1291 fund if:
1. The shareholder did not elect to
treat the PFIC as a QEF or
2. It is an unpedigreed QEF (as
defined in Regulations section
1.1291-9(j)(2)(iii)).

Tax Consequences for
Shareholders of a Section 1291
Fund
Shareholders of a section 1291 fund
are subject to special rules when they
receive an excess distribution (defined
below) from, or dispose of the stock of,
a section 1291 fund. A distribution may
be partly or wholly an excess
distribution. The entire amount of gain
from the disposition of a section 1291
fund is treated as an excess
distribution.
Excess distributions. An excess
distribution is the part of the distribution
received from a section 1291 fund in
the current tax year that is greater than
125% of the average distributions
received in respect to such stock by the
shareholder during the 3 preceding tax
years (or, if shorter, the portion of the
shareholder’s holding period before the
current tax year). No part of a
distribution received or deemed
received during the first tax year of the
shareholder’s holding period of the
stock will be treated as an excess
distribution.
The excess distribution is
determined on a per share basis and is
allocated to each day in the
shareholder’s holding period of the
stock. See section 1291(b)(3) for
adjustments that are made when
determining if a distribution is an
excess distribution.
Portions of an excess distribution
are treated differently. The portions
allocated to the days in the current tax
year and the shareholder’s tax years in
its holding period before the foreign
corporation qualified as a PFIC
(pre-PFIC years) are taxed as ordinary

income. The portions allocated to the
days in the shareholder’s tax years
(other than the current tax year) in its
holding period when the foreign
corporation was a PFIC are not
included in income, but are subject to
the deferred tax amount, as defined in
section 1291(c).
See the instructions for Part IV on
page 6.
Exempt organizations. If a
shareholder of a PFIC is a tax exempt
organization, the tax and interest rules
of section 1291 will apply only if the
dividend from the PFIC will be taxable
to the shareholder under subchapter F.

Mark-to-Market Election for
PFIC Stock
A U.S. shareholder of a PFIC may elect
to mark the PFIC stock to market if the
stock is “marketable stock.”
Marketable stock. Marketable stock
is:
• PFIC stock that is regularly traded
(as defined in Regulations section
1.1296-2(b)) on:
1. A national securities exchange
that is registered with the Securities
and Exchange Commission (SEC),
2. The national market system
established under section 11A of the
Securities and Exchange Act of 1934,
or
3. A foreign securities exchange
that is regulated or supervised by a
governmental authority of the country in
which the market is located and has the
characteristics described in Regulations
section 1.1296-2(c)(1)(ii).
• Stock in certain PFICs described in
Regulations section 1.1296-2.
• Any option on marketable stock
described above to the extent provided
in Regulations section 1.1296-2(e).
For additional information, including
special rules for RICs that own PFIC
stock, see Regulations section
1.1296-2.

Tax Consequences
If the PFIC shareholder elects to mark
the stock to market, the shareholder
either:
1. Includes in income each year an
amount equal to the excess, if any, of
the fair market value of the PFIC stock
as of the close of the taxable year over
the shareholder’s adjusted basis in
such stock or
2. Is allowed a deduction equal to
the lesser of:
a. The excess, if any, of the
adjusted basis of the PFIC stock over
its fair market value as of the close of
the tax year or
b. The excess, if any, of the amount
of mark-to-market gain included in the
gross income of the PFIC shareholder

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for prior taxable years over the amount
allowed such PFIC shareholder as a
deduction for a loss with respect to
such stock for prior taxable years.
See the instructions for Part III on
page 6 for more information.
Basis adjustment. If the stock is held
directly, the shareholder’s adjusted
basis in the PFIC stock is increased by
the amount included in income and
decreased by any deductions allowed.
If the stock is owned indirectly through
foreign entities, see Regulations section
1.1296-1(d)(2).

Additional Information
Required
A shareholder of a PFIC must attach
certain information to Form 8621. This
information includes:
• The number of shares in each class
of stock owned by the shareholder at
the beginning of its tax year;
• Any changes in the number of shares
in each class of stock during its tax
year and the dates of such changes;
and
• The number of shares in each class
of stock at the end of its tax year.

Specific Instructions
Important: All line references to Form
1120 and Form 1040 are to the 2007
forms. Other entities should use the
comparable line on their tax return.

Address and Identifying
Number
Address. Include the suite, room, or
other unit number after the street
address. If the post office does not
deliver mail to the street address and
the shareholder has a P.O. box, enter
the box number instead.
Identifying number. Individuals
should enter a social security number
or a taxpayer identification number
issued by the IRS. All other entities
should enter an employer identification
number.

Part I. Elections
A. Election To Treat the PFIC
as a QEF (Section 1295
Election)
Who May Make the Election
Generally, a U.S. person that owns
stock in a PFIC, directly or indirectly,
may make Election A to treat the PFIC
as a QEF.

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Instructions for Form 8621

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Note. A separate election must be
made for each PFIC that the
shareholder wants to treat as a QEF.
Exception. A tax-exempt organization
that is not taxable under section 1291
may not make the election. In addition,
a tax-exempt organization that is a
member of a domestic pass-through
entity is not subject to a QEF election
made by the pass-through entity.
Chain of ownership. In a chain of
ownership, only the first U.S. person
that is a direct or indirect shareholder of
the PFIC may make the election.
Pass-through entities. A QEF
election made by a domestic
partnership, S corporation, or estate is
made in the pass-through entity’s
capacity as a shareholder of a PFIC.
The entity will include the QEF earnings
as income for the year in which the
PFIC’s taxable year ends. The interest
holder in the pass-through entity takes
the income into account under the rules
applicable to inclusions of income from
a pass-through entity.
Affiliated groups. The common
parent of an affiliated group of
corporations that joins in filing a
consolidated income tax return makes
the QEF election for all members of the
affiliated group that are shareholders in
the PFIC. An election by a common
parent is effective for all members of
the group that own stock in the PFIC at
the time the election is made or any
time thereafter.
For more information on who may
make the election, see Regulations
section 1.1295-1(d).

When To Make the Election
Generally, a shareholder must make
the election to be treated as a QEF by
the due date, including extensions, for
filing the shareholder’s income tax
return for the first taxable year to which
the election will apply (the “election due
date”). See Retroactive election below
for exceptions. The foreign corporation
will be treated as a QEF with respect to
the shareholder for the taxable year in
which the election is made and for each
subsequent tax year of the foreign
corporation ending with or within a
taxable year of the shareholder for
which the election is effective. For more
information on making a retroactive
election, see Regulations section
1.1295-3.
Retroactive election. A shareholder
may make a QEF election for a taxable
year after the election due date (a
retroactive election), only if:
• The shareholder has preserved its
right to make a retroactive election
under the protective statement regime
(described below) or
• The shareholder obtains the
permission of the IRS to make a

retroactive election under the consent
regime (described below).
Protective statement regime.
Under the protective statement regime,
a shareholder may preserve the ability
to make a retroactive election if the
shareholder:
1. Reasonably believed, as of the
due date for making the QEF election,
that the foreign corporation was not a
PFIC for its taxable year that ended
during that year (retroactive election
year);
2. Filed a Protective Statement (see
below) with respect to the foreign
corporation, applicable to the
retroactive election year, in which the
shareholder describes the basis for its
reasonable belief;
3. Extended, in the Protective
Statement, the periods of limitations on
the assessment of taxes under the
PFIC rules for all taxable years to which
the protective statement applies; and
4. Complied with the other terms
and conditions of the protective
statements.
The Protective Statement must be
attached to the shareholder’s tax return
for the shareholder’s first taxable year
to which the statement will apply. For
required content of the statement and
other information, see Regulations
section 1.1295-3(c).
Consent regime. Under the
consent regime, a shareholder that has
not satisfied the requirements of the
protective regime may request that the
IRS permit a retroactive election. The
consent regime applies only if:
1. The shareholder reasonably
relied on tax advice of a competent and
qualified tax professional;
2. The interest of the U.S.
government will not be prejudiced if the
consent is granted;
3. The shareholder requests
consent before the PFIC status issue is
raised on audit; and
4. The shareholder satisfies the
procedural requirements under
Regulations section 1.1295-3(f)(4).

Special Rules
For rules relating to the invalidation,
termination, or revocation of a section
1295 election, see Regulations section
1295-1(i). Also see Regulations section
1.1295-1(c)(2) for rules relating to the
years to which a section 1295 election
applies.

How To Make the Election
For the tax year in which the section
1295 election is made, the shareholder
must do the following.
1. Check box A in Part I of Form
8621.

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2. Complete the applicable lines of
Part II. Include the information provided
in the PFIC Annual Information
Statement, the Annual Intermediary
Statement, or a combined statement
(see below) received from the PFIC.
3. Attach Form 8621 to a timely filed
tax return.
For each subsequent tax year in
which the election applies and the
corporation is treated as a QEF, the
shareholder must:
1. Complete the applicable lines of
Part II and
2. Attach Form 8621 to a timely filed
tax return.

Annual Election Requirements
of the PFIC or Intermediary
PFIC Annual Information Statement.
For each year of the PFIC ending in a
taxable year of a shareholder to which
the section 1295 election applies, the
PFIC must provide the shareholders
with a PFIC Annual Information
Statement. The statement must contain
certain information, including:
1. The shareholder’s pro rata share
of the PFIC’s ordinary earnings and net
capital gain for that taxable year or
2. Sufficient information to enable
the shareholder to calculate its pro rata
share of the PFIC’s ordinary earnings
and net capital gain for that taxable
year. For other information required to
be included in the PFIC Annual
Information Statement see Regulations
section 1.1295-1(g).
Annual Intermediary Statement. If
the shareholder holds stock in a PFIC
through an intermediary, an Annual
Intermediary Statement may be issued
in lieu of the PFIC Annual Information
Statement. For the definition of an
intermediary, see Regulations section
1.1295-1(j). For details on the
information that should be included in
the Annual Intermediary Statement, see
Regulations section 1.1295-1(g)(3).
Combined statements. A PFIC that
owns directly or indirectly any shares of
stock in one or more PFICs may
provide its shareholders with a PFIC
Annual Information Statement in which
it combines its own required information
and representations with the
information and representations of any
lower-tier PFIC. Similarly, an
intermediary through which a
shareholder indirectly holds stock in
more than one PFIC may provide the
shareholder a combined Annual
Intermediary Statement. For more
information, see Regulations section
1.1295-1(g)(4).
Documentation. For all taxable years
subject to the section 1295 election, the
shareholder must keep copies of all

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Forms 8621, attachments, and all PFIC
Annual Information Statements or
Annual Intermediary Statements.
Failure to produce these documents at
the request of the IRS may result in
invalidation or termination of the section
1295 election. See Regulations section
1.1295-1(f)(2)(ii). In rare and unusual
circumstances, the IRS will consider
requests for alternative documentation
to verify the ordinary earnings and net
capital gain of the PFIC. For more
information, see Regulations section
1.1295-1(g)(2).

B. Deemed Sale Election
Who May Make the Election
This election may be made by a U.S.
person that elects to treat a PFIC as a
QEF for a foreign corporation’s tax year
following its first tax year as a PFIC
included in the shareholder’s holding
period (an unpedigreed QEF). A
shareholder making this election is
deemed to have sold the PFIC stock as
of the first day of the PFIC’s first tax
year as a QEF (the qualification date)
for its fair market value.

Special Rules

For more information regarding
making Election B, see Regulations
section 1.1291-10.

C. Deemed Dividend Election
Who May Make the Election
This election may be made by a U.S.
person that elects to treat a PFIC that is
also a CFC as a QEF for the foreign
corporation’s tax year following its first
tax year as a PFIC included in the
shareholder’s holding period (an
unpedigreed QEF).
A shareholder making this election
is treated as receiving a dividend of its
pro rata share of the post-1986
earnings and profits (defined below) of
the PFIC on the qualification date
(defined under the instructions for
Election B above). The deemed
dividend is taxed as an excess
distribution, allocated only to the days
in the shareholder’s holding period
during which the foreign corporation
qualified as a PFIC. For this purpose,
the shareholder’s holding period ends
on the day before the qualification date.

Special Rules

For purposes of this election, the
following apply.
• The gain from the deemed sale is
taxed as an excess distribution
received on the qualification date.
• The basis of the stock is increased
by the gain recognized. The manner in
which the basis adjustment is made
depends on whether the shareholder is
a direct or indirect shareholder. See
Regulations section 1291-10(f).
• The new holding period of the stock
begins on the qualification date.
• The election may be made for stock
on which the shareholder will realize a
loss, but that loss cannot be
recognized. In addition, there is no
basis adjustment for a loss.
• After the deemed sale, the PFIC
becomes a pedigreed QEF with respect
to the shareholder.

For purposes of this election, the
following apply.
• The term “post-1986 earnings and
profits” means the undistributed
earnings and profits of the PFIC (as of
the day before the qualification date)
accumulated in tax years beginning
after 1986 during which the CFC was a
PFIC and while the shareholder held
the stock.
• The basis of the shareholder’s stock
is increased by the amount of the
deemed dividend. The manner in which
the basis adjustment is made depends
on whether the shareholder is a direct
or indirect shareholder. See
Regulations section 1.1291-9(f).
• The shareholder’s holding period
(solely for purposes of applying the
PFIC rules after the deemed dividend
election) begins on the qualification
date.

When To Make the Election

When To Make the Election

This election must be made by the due
date, including extensions, of the
shareholder’s original tax return (or by
filing an amended return within 3 years
of the due date) for the tax year that
includes the qualification date.
However, see Form 8621-A if the
3-year period has expired.

This election must be made by the due
date (including extensions), of the
shareholder’s original tax return (or by
filing an amended return within 3 years
of the due date) for the tax year that
includes the qualification date.
However, see Form 8621-A if the
3-year period has expired.

How To Make the Election

How To Make the Election

To make this election:
1. Check box B in Part I,
2. Enter the gain or loss on line 10f
of Part IV, and
3. If a gain is entered, complete line
11 to report the tax and interest due on
the excess distribution.

To make this election:
1. Check box C in Part I,
2. Enter the dividend on line 10e of
Part IV as an excess distribution, and
3. Complete line 11 to figure the tax
and interest due on the excess
distribution.

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Attachments. The shareholder must
attach a statement to Form 8621 that
demonstrates the calculation of its pro
rata share of the post-1986 earnings
and profits of the PFIC that are treated
as distributed to the shareholder on the
qualification date. The post-1986
earnings and profits may be reduced
(but not below zero) by the amount that
the shareholder satisfactorily
demonstrates was previously included
in its income or in the income of
another U.S. person. The shareholder
demonstrates this by including in the
statement mentioned above the
following information:
• The name, address, and identifying
number of the U.S. person and the
amount that was included in income;
• The tax year in which the amount
was previously included in income;
• The provision of law under which the
amount was previously included in
income;
• A description of the transaction in
which the shareholder acquired the
stock of the PFIC from the other U.S.
person; and
• The provision of law under which the
shareholder’s holding period includes
the holding period of the other U.S.
person.
For more information on making
Election C, see Regulations section
1.1291-9.

D. Election To Extend Time
for Payment of Tax
Who May Make the Election
A shareholder of a QEF may make
Election D to extend the time for
payment of the tax on its share of the
undistributed earnings of the fund for
the current tax year. If a U.S.
partnership is a shareholder of a QEF,
the election is made at the partner
level.

Special Rules
• If this election is made, interest will

be imposed on the amount of the
deferred tax.
• The election cannot be made for any
earnings on shares disposed of during
the tax year or for a tax year that any
portion of the shareholder’s pro rata
share of the fund’s earnings is included
in income under section 551 (relating to
foreign personal holding companies) or
section 951 (relating to CFCs).

When To Make the Election
Generally, this election must be made
by the due date, including extensions,
of the shareholder’s tax return for the
tax year for which the shareholder
reports the income related to the
deferred tax.

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How To Make the Election

How To Make the Election

To make this election:
1. Check box D in Part I and
2. Complete lines 3a through 4c of
Part II.

To make this election:
1. Check box E in Part I and
2. Enter the gain or loss on line 10f
of Part IV. If a gain, complete the rest of
Part IV.

For more information on making
Election D, see Temporary Regulations
section 1.1294-1T.

E. Election To Recognize
Gain on Deemed Sale of
PFIC Stock
Who May Make the Election
This election may be made by:
• A U.S. person that is a shareholder
of a foreign corporation that no longer
qualifies as a PFIC under either the
income or asset test of section 1297(a)
or
• A U.S. shareholder (as defined in
section 951(b)) that owns stock in a
foreign corporation that is a CFC and is
not treated as a PFIC with respect to
the U.S. shareholder under section
1297(d).
Such persons may elect to treat the
stock of the foreign corporation as sold
on the last day of the last tax year of
the foreign corporation in which it was
treated as a PFIC (termination date) for
its fair market value on that date.

Special Rules
• The gain from the deemed sale is
taxed as an excess distribution.

• Any shareholder who owns stock in a

CFC during its last taxable year as a
PFIC, may, alternatively, apply the
deemed dividend election rules under
Election C. The deemed dividend is
taxed as an excess distribution.
• The basis in the stock is increased by
the amount of the excess distribution
taxed to the shareholder making
Election E.
• The new holding period of the stock
begins on the date after the deemed
sale.
• Election E may be made for stock on
which there would be a loss, but the
loss is not recognized.
For more information on making this
election, see Temporary Regulations
sections 1.1297-3T(a) and (b).

When To Make the Election
This election is made either:
1. With the original return for the tax
year of the shareholder that includes
the last day of the last year of the
foreign corporation during which it
qualified as a PFIC or
2. By filing an amended return for
the tax year that includes the date of
the deemed sale.

See Part V for annual reporting
requirements for outstanding section
1294 elections.

F. Election To
Mark-to-Market PFIC Stock
Who May Make the Election
Election F may be made by:

• A U.S. person who owns (or is

treated as owning) “marketable stock”
(defined on page 2) in a PFIC at the
close of such person’s tax year or
• A RIC that meets the requirements of
section 1296(e)(2).
For more information, see section
1296 and Regulations section 1.1296-1.
See sections 1296(f) and (g) and
Regulations sections 1.1296-1(e) and
(h)(1)(ii) for information regarding stock
owned through certain foreign entities.

When To Make the Election
This election must be made on or
before the due date (including
extensions) of the U.S. person’s income
tax return for the tax year in which the
stock is marked to market. A section
1296 election by a CFC is made by its
controlling shareholders. For more
information, see Regulations section
1.1296-1(h)(1)(ii). Once made, the
election applies to all subsequent tax
years unless the election is revoked or
terminated pursuant to Regulations
section 1.1296-1(h)(3).

How To Make the Election
To make the election:
1. Check box F in Part I,
2. Complete Part III to report the
gain or loss, and
3. Complete Part IV if the tax and
interest rules of section 1291 (explained
in the Part IV instructions, which begin
on page 6) apply.
Coordination of Election F with
section 1291. If Election F is made for
any tax year, then, except as provided
in Coordination rules for first year of
election below, do not complete Part IV
of Form 8621 with respect to any stock
for which that election is made.
Coordination rules for first year of
election. See section 1296(j) and
Regulations section 1.1296-1(i) for
coordination rules that apply for the first
year that election F is made.
Coordination of other
mark-to-market rules under chapter
1 of the Code with section 1291.
See Regulations section 1.1291-1(c)(4).

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Part II. Income From a
QEF
For any tax year in which the foreign
corporation is not treated as a QEF
because it is not a PFIC under section
1297(a), the shareholder is not required
to complete Part II. However, the
section 1295 election is not terminated.
If the foreign corporation is treated as a
PFIC in any subsequent tax year, the
original election continues to apply and
the shareholder must include in Part II
its pro rata share of ordinary earnings
and net capital gain and also must
comply with the section 1295 annual
reporting requirements.

Lines 1 and 2
Lines 1a and 2a. Enter on lines 1a
and 2a, respectively, your pro rata
share of the ordinary earnings and net
capital gain of the QEF. The PFIC
should provide these amounts or
information that will help you determine
your pro rata share. See Annual
Election Requirements of the PFIC or
Intermediary on page 3.
Lines 1b and 2b. Your share of the
ordinary earnings and net capital gain
of the QEF is reduced by the amounts
you include in income under section
551 or 951 for the tax year with respect
to the QEF. Your share of these
amounts may also be reduced as
provided in section 1293(g).
Line 1c. This amount is treated as an
ordinary dividend on your tax return.
For individuals, include this amount
in the total on Form 1040, line 9a. For
corporations, include this amount in the
total on Form 1120, Schedule C, line
13.
Line 2c. See the instructions for the
Schedule D used for your tax return.
Portions of the net capital gain may
have to be reported on different lines of
Schedule D, depending upon the
information provided by the QEF
concerning the section 1(h) categories
of net capital gains and amounts
thereof, derived by the QEF. See
Regulations section 1.1293-1(a)(2) for 3
options a QEF may use to report and
calculate capital gain.

Line 3
If you receive a distribution from the
QEF during the current tax year, the
distribution is first treated as a
distribution out of the earnings and
profits of the QEF accumulated during
the year. If the total amount distributed
(line 3b) exceeds the amount included
in income (line 3a), the excess is
treated as distributed out of the most
recently accumulated earnings and

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profits and is taxable to you unless you
satisfactorily demonstrate that the
excess was previously included in the
income of another U.S. person. To
satisfactorily demonstrate this, the QEF
shareholder must attach a statement to
Form 8621 that includes the information
listed under Attachments on page 4.

Line 4
Line 4a. Enter the total tax on your
total taxable income (including your
share of undistributed earnings of the
QEF) for the tax year (e.g., from Form
1120, Schedule J, line 10, or Form
1040, line 63).
For this purpose, “undistributed
earnings” is the excess, if any, of the
amount included in gross income under
section 1293(a) over the sum of the
amount of any distribution and the
portion of the amount attributable to
stock in the QEF that you transferred or
otherwise disposed of before the end of
the QEF’s tax year.
Line 4b. Calculate your total tax as if
your total taxable income did not
include your share of the undistributed
earnings of the QEF (line 3e). Enter this
amount on line 4b.
Line 4c. For corporations, enter this
tax on Form 1120, Schedule J, in
brackets to the left of the entry space
for line 10. Subtract that amount from
the total of lines 7 through 9 and enter
the difference on line 10.
For individuals, enter this tax on
Form 1040 in brackets to the left of the
entry space for line 63. Subtract that
amount from the total of lines 57
through 62, and enter the difference on
line 63.

Part III. Gain or (Loss)
From Mark-to-Market
Election
Lines 7 Through 9
If the fair market value of the PFIC
stock as of the close of the tax year is
more than the U.S. person’s adjusted
basis in the stock, the excess is a gain
and is treated as ordinary income.
If the adjusted basis of the stock is
more than the fair market value, the
excess is allowed as a deduction, but
only to the extent of the lesser of:
1. The amount of the excess (line 7)
or
2. The excess of the amounts that
were included in income under the
mark-to-market rules for prior tax years
over the amounts allowed as a
deduction under the mark-to-market
rules for prior tax years (line 8). See

section 1296(d) and Regulations
sections 1.1296-1(c)(3) and (4).
This amount is treated as an
ordinary loss.
Line 9. Corporations and individuals
should include the gain or (loss) on the
“other income” line of their tax returns.
Other entities should include this
amount on the comparable line of their
tax return.
If a CFC makes a mark-to-market
election with respect to a PFIC in which
it owns stock, any line 9 gain is treated
as foreign personal holding company
income and any line 9 loss is treated as
a deduction that is allocable to foreign
personal holding company income.
For more information relating to
mark-to-market elections under section
1296, see Regulations sections
1.1296-1 and 1.1296-2.

Part IV. Distributions
From and Dispositions
of Stock of a Section
1291 Fund
See Section 1291 Fund on page 2 for
the definition of section 1291 fund. See
page 2 for a brief summary of the tax
consequences for shareholders of a
section 1291 fund.
Complete a separate Part IV for
each excess distribution. That is, if you
receive a distribution from a section
1291 fund with respect to shares for
which you have different holding
periods, complete lines 10a through
10e separately for each block of shares
that has the same holding period
(“applicable stock”). If you dispose of
stock in a section 1291 fund for which
you have different holding periods,
complete line 10f for each block of
shares that has the same holding
period.

Line 10
Lines 10a and 10b
Enter your total distributions from the
section 1291 fund with respect to the
applicable stock for the periods
indicated.
Note. A distribution to a corporation
claiming the foreign tax credit for
deemed paid foreign taxes includes
foreign taxes deemed paid. See Form
1118, Foreign Tax
Credits – Corporations, Schedule C,
Part I, column 10, and Parts II and III,
column 8, for the gross-up amount.
Line 10a. If the holding period of the
applicable stock began in the current
year, there is no excess distribution and
Part IV should be completed as follows:

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Enter on line 10a the total distributions
you received from the section 1291
fund with respect to that stock during
the current tax year. If you did not
dispose of that stock during the tax
year, do not complete the rest of Part
IV. If you did dispose of that stock
during the tax year, skip lines 10b
through 10e and complete lines 10f and
11.
If the holding period of the applicable
stock began in the current tax year, the
line 10a amount is taxed according to
the rules of section 301. To the extent
that section 301(c)(1) is applicable,
include the amount as a dividend on
your income tax return. For
corporations, include this amount on
Form 1120, Schedule C, line 13. For
individuals, include this line 10a amount
on Form 1040, line 9a (and, if
applicable, on Schedule B (Form 1040),
line 5).

Line 10c
Divide the amount on line 10b by 3. If
the number of tax years in your holding
period preceding the current tax year is
less than 3, divide the amount on line
10b by that number.

Line 10e
Nonexcess distribution. The
nonexcess distribution is the lesser of
line 10a or line 10d. This amount is
taxed according to the rules of section
301. To the extent that section
301(c)(1) is applicable, include the
amount as a dividend on your income
tax return. For corporations, include this
amount on Form 1120, Schedule C,
line 13. For individuals, include this
amount on Form 1040, line 9a (and, if
applicable, on Schedule B (Form 1040),
line 5).
Excess distributions. If you received
more than one distribution during the
tax year with respect to the applicable
stock, the excess distribution is
apportioned among all actual
distributions. Each apportioned amount
is treated as a separate excess
distribution.

Line 10f
Gain recognized on the disposition of
stock of a section 1291 fund is treated
as an excess distribution. Losses are
not recognized. Stock of a section 1291
fund is considered disposed of if it is
sold, transferred, or pledged.

Line 11
Lines 11a and 11b
Determine the taxation of the excess
distribution on a separate sheet and
attach it to Form 8621. Divide the
amount on line 10e or 10f, whichever
applies, by the number of days in your
holding period. The holding period of

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the stock is treated as ending on the
date of the distribution or disposition.
Special rules apply to the holding
period if:
• The deemed dividend election
(Election C) is made (see the
instructions for Election C beginning on
page 4) or
• The mark-to-market election
(Election F) is made or was made in a
prior year (see section
1291(a)(3)(A)(ii)).
Determine the amount allocable to
each tax year in your holding period by
adding the amounts allocated to the
days in each such tax year. Add the
amounts allocated to the pre-PFIC and
current tax years. Enter the sum on line
11b.
This amount is treated as ordinary
income (e.g., individuals and
corporations should enter this amount
on the “other income” line of their tax
return).

Line 11c
Determine the increase in tax for each
tax year in your holding period (other
than the current tax year and pre-PFIC
years). An increase in tax is determined
for each PFIC year by multiplying the
part of the excess distribution allocated
to each year (as determined on line
11a) by the highest rate of tax under
section 1 or section 11, whichever
applies, in effect for that tax year. Add
the increases in tax computed for all
years. Enter the aggregate increases in
tax (before credits) on line 11c.

Line 11d
To figure the foreign tax credit, the
shareholder of a section 1291 fund
figures the total creditable foreign taxes
attributable to the distribution. This
amount includes the direct foreign taxes
paid by the shareholder on the
distribution (for example, withholding
taxes) and, for 10% or greater
corporate shareholders, any taxes
deemed paid under section 902. Both
the direct and indirect foreign taxes
must be creditable under general
foreign tax credit principles and the
shareholder must choose to claim the
foreign tax credit for the current tax
year.
The excess distribution taxes (the
creditable foreign taxes attributable to
an excess distribution) are determined
by apportioning the total creditable
foreign taxes between the part of the
distribution that is an excess distribution
and the part that is not.
The excess distribution taxes are
allocated in the same manner as the
excess distribution is allocated. See
Excess distributions on page 2. Those
taxes allocated to pre-PFIC tax years
and the current tax year are taken into

account for the current tax year under
the general rules of the foreign tax
credit.
The excess distribution taxes
allocated to a PFIC year only reduce
the increase in tax figured for that tax
year (but not below zero). No carryover
of any unused excess distribution taxes
is allowed.
When you dispose of PFIC stock,
the above foreign tax credit rules apply
only to the part of the gain that, without
regard to section 1291, would be
treated under section 1248 as a
dividend.

Line 11e
This amount is the aggregate increase
in tax and is included on your tax return
as additional taxes.
For individuals, enter this amount on
Form 1040 to the left of the line 44
entry space. Enter “Sec. 1291” next to
the amount and include the amount as
part of the total for line 44.
For corporations, enter this amount
on Form 1120, Schedule J, to the left of
the entry space for line 2. Enter “Sec.
1291” next to the amount and include it
as part of the total for line 2. Other
entities should use the comparable line
on their income tax return.

Line 11f
Interest is charged on each net
increase in tax for the period beginning
on the due date (without regard to
extensions) of your income tax return
for the tax year to which an increase in
tax is attributable and ending with the
due date (without regard to extensions)
of your income tax return for the tax
year of the excess distribution.
For individuals, enter the interest at
the bottom right margin of Form 1040,
page 1 and label it as “Sec. 1291
interest.” Include this amount in your
check or money order payable to the
United States Treasury. If you would
otherwise receive a refund, reduce the
refund by the interest due.
For corporations, enter this interest
at the bottom right margin of Form
1120, page 1, and label it as “Sec.
1291 interest.” Include this amount in
your check or money order payable to
the United States Treasury. If you
would otherwise receive a refund,
reduce the refund by the interest due.

-7-

Part V. Status of Prior
Year Section 1294
Elections and
Termination of Section
1294 Elections
Each person who has made a section
1294 election must (1) annually report
the status of that election and (2) report
the termination of any section 1294
election that occurred during the tax
year. See Temporary Regulations
section 1.1294-1T(h).
Line 1. Enter the last day of each tax
year for which you made a section
1294 election that is outstanding. Do
not include an election made in the
current tax year.
Line 2. Enter the undistributed
earnings of the QEF for which the
payment of tax was extended by the
section 1294 election entered on line 1.
If the election was partially terminated
in a prior year, enter the remaining
undistributed earnings.
Line 3. Enter the tax for which
payment was extended by the section
1294 election entered on line 1. If the
election was partially terminated in a
previous tax year, enter the balance of
the deferred tax.
Line 4. Enter the accrued interest
(determined under section 6621) on the
deferred tax. This is the interest
accrued from the due date (not
including extensions) of the return for
the year for which the section 1294
election was made until the date the
current year’s return is filed.
Line 5. Enter the event(s) that
occurred during the tax year that
terminated one or more of the section
1294 elections reported on line 1. A
section 1294 election may be
terminated voluntarily. However, an
election will terminate automatically, in
whole or in part, when any of the
following events occur:
• An actual or deemed distribution of
earnings to which the election is
attributable (a loan, pledge, or
guarantee by the QEF to or for the
benefit of the taxpayer may cause a
deemed distribution of the earnings);
• A disposition of stock in the QEF,
including a pledge by the taxpayer of
stock as security for a loan; or
• A change of status of the QEF (that
is, a foreign corporation that is no
longer a QEF or PFIC).
Line 6. Enter the earnings distributed
or deemed distributed as a result of the
events described on line 5. Earnings
are treated as distributed out of the
most recently accumulated earnings
and profits. Accordingly, an event will

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first terminate the most recently made
election.
An election may be terminated in
whole or in part depending on the event
causing the termination. Examples are
as follows.
• A distribution of earnings will
terminate an election to the extent the
election is attributable to the earnings
distributed.
• A loan, pledge, or guarantee by the
QEF made directly or indirectly to the
electing shareholder or related person
will terminate an election to the extent
of the undistributed earnings equal to
the amount loaned, secured, or
guaranteed.
• A disposition of stock will terminate
all elections with respect to the
undistributed earnings attributable to
that stock.
• A change in status of the QEF will
terminate all elections.
For more information, see
Regulations section 1.1294-1T(e).
Line 7. Enter the deferred tax due
from the termination of the section 1294
election. The deferred tax entered on
line 3 is due if the election was
completely terminated. If the election
was only partially terminated, a
proportionate amount of the deferred

tax is due. That amount is determined
by multiplying the amount entered on
line 3 by a fraction, of which the
numerator is the amount entered on
line 6 and the denominator is the
amount entered on line 2. The deferred
tax is due by the due date of the
shareholder’s income tax return
(without regard to extensions) for the
year of termination.
When the election is terminated,
corporations include the deferred tax as
part of the total for Form 1120,
Schedule J, line 10. Also enter the
deferred tax to the left of line 10 and
label it as “Sec. 1294 deferred tax.”
For individuals, enter the deferred
tax as part of the total for Form 1040,
line 63. Also enter the deferred tax to
the left of line 63, and label it as “Sec.
1294 deferred tax.”
Line 8. Enter the interest accrued on
the deferred tax. Interest accrues
beginning on the due date (without
regard to extensions) of your tax return
for the tax year in which the section
1294 election is made, and ending with
the due date (without regard to
extensions) of your tax return for the
tax year of the termination. Interest is
computed using the rates and methods
under section 6621.

For corporations, enter the amount
of section 1294 interest at the bottom
right margin of Form 1120, page 1 and
label it as “Sec. 1294 interest.” Also
include this amount in your check or
money order payable to the United
States Treasury. If you would otherwise
receive a refund, reduce the refund by
the interest due.
For individuals, enter the interest
from line 8 at the bottom right margin of
Form 1040, page 1, and label it as
“Sec. 1294 interest.” Also include this
amount in your check or money order
payable to the United States Treasury.
If you would otherwise receive a refund,
reduce the amount of the refund by the
amount of interest due.
Lines 9 and 10. Complete lines 9 and
10 only if you have partially terminated
your section 1294 election. Enter on
line 9 the part of the deferred tax
outstanding after the partial termination
of the section 1294 election. This
amount should equal line 3 minus line
7.
Enter on line 10 the accrued interest
remaining after the partial termination of
the section 1294 election. This amount
should equal line 4 minus line 8.

Disclosure, Privacy Act, and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the
Internal Revenue laws of the United States. Sections 6001, 6011, 6012(a), 6103, and 6109, and their regulations, require you
to provide this information. We need this information to ensure that you are complying with the Internal Revenue laws and to
allow us to figure and determine the right amount of tax.
Section 6109 requires that you provide your identifying number on the return. This is so we know who you are and can
process your return and other papers. You must fill in all parts of the tax form that apply to you. If you do not file a return
under circumstances requiring its filing, do not provide the information we ask for, or provide fraudulent information, you may
be charged penalties and be subject to criminal prosecution.
Generally, tax returns and return information are confidential, as required by section 6103. However, section 6103 allows
or requires the Internal Revenue Service to disclose or give the information shown on your tax return to others as described
in the Code. For example, we may disclose your tax information to the Department of Justice for civil and criminal litigation.
We may also disclose this information to cities, states, and the District of Columbia for use in administering their tax laws, to
federal and state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to
combat terrorism.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless
the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long
as their contents may become material in the administration any Internal Revenue law.
The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden for
individual taxpayers filing this form is approved under OMB control number 1545-0074 and is included in the estimates shown
in the instructions for their individual income tax return. The estimated burden for all other taxpayers who file this form is
shown below.
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13 hr., 37 min.

Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8 hr., 38 min.

Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9 hr., 14 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we
would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee,
SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this office.
Instead, see When and Where To File on page 1.

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