8621 Instructions for Form 8621

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Instructions for Form 8621

Department of the Treasury
Internal Revenue Service

(Rev. December 2018)

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

DRAFT AS OF
August 31, 2018

Section references are to the Internal Revenue
Code unless otherwise noted.

Future Developments

For the latest information about
developments relating to Form 8621,
and its instructions, such as legislation
enacted after they were published, go to
www.irs.gov/form8621.

What’s New

Election to be treated as a Qualifying
Insurance Corporation. A new
checkbox has been added on page 1 of
Form 8621 for shareholders of stock of
a foreign corporation that elect to treat
such stock as the stock of a qualifying
insurance corporation under section
1297(f)(2), which was added by section
14501 of the Tax Cuts and Jobs Act
(TCJA). For more information, see
Election To Be Treated as a Qualifying
Insurance Corporation, later.

General Instructions
Who Must File
Qualifying Insurance
Corporation

A U.S. person that owns stock of a
foreign corporation and elects to treat
such stock as the stock of a qualifying
insurance corporation under the
alternative facts and circumstances test
within the meaning of section 1297(f)(2)
must file a limited-information Form
8621. For details, see Election To Be
Treated as a Qualifying Insurance
Corporation, later.

Passive Foreign Investment
Corporation (PFIC)

Generally, a U.S. person that is a direct
or indirect shareholder of a PFIC must
file Form 8621 for each tax year under
the following five circumstances if the
U.S. person:
1. Receives certain direct or indirect
distributions from a PFIC,
2. Recognizes gain on a direct or
indirect disposition of PFIC stock,
3. Is reporting information with
respect to a Qualified Electing Fund
(QEF) or section 1296 mark-to-market
election,

Aug 29, 2018

4. Is making an election reportable
in Part II of the form, or
5. Is required to file an annual report
pursuant to section 1298(f). See the
Part I instructions, later, for more
information regarding the person that
must file pursuant to section 1298(f).
A separate Form 8621 must be filed
for each PFIC in which stock is held
directly or indirectly. In the case of a
chain of ownership, under the five
circumstances described above, unless
otherwise provided, if the shareholder
owns one PFIC and through that PFIC
owns one or more other PFICs, the
shareholder must file a Form 8621 for
each PFIC in the chain.
A single Form 8621 may be filed
with respect to a PFIC to report the
information required by section 1298(f)
(that is, Part I), as well as to report
information in Parts III through VI of the
form and to make elections in Part II of
the form. For example, a U.S. person
that has made a section 1296
mark-to-market election with respect to
a PFIC will file a single Form 8621 and
complete Part I and Part IV.

Indirect shareholder. Generally, a
U.S. person is an indirect shareholder of
a PFIC if it is:
A 50%-or-more shareholder of a
foreign corporation that is not a PFIC
and that directly or indirectly owns stock
of a PFIC,
A shareholder of a PFIC where the
PFIC itself is a shareholder of another
PFIC,
A 50%-or-more shareholder of a
domestic corporation where the
domestic corporation owns a section
1291 fund, or
A direct or indirect owner of a
pass-through entity where the
pass-through entity itself is a direct or
indirect shareholder of a PFIC. For more
information on determining whether a
U.S. person is an indirect shareholder,
see Regulations section 1.1291-1(b)(8).
For purposes of these rules, a
pass-through entity is a partnership, S
Corporation, trust, or estate.
However, a U.S. person that owns
stock of a PFIC through a tax-exempt
organization or account described in the
Cat. No. 10784P

list below is not treated as a shareholder
of the PFIC.
An organization or an account that is
exempt from tax under section 501(a)
because it is described in section
501(c), 501(d), or 401(a).
A state college or university
described in section 511(a)(2)(B).
A plan described in section 403(b) or
457(b).
An individual retirement plan or
annuity as defined in section 7701(a)
(37).
A qualified tuition program described
in section 529 or 530.
Interest holder of pass-through entities. In general, the following interest
holders must file Form 8621, unless an
exception applies.
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.
3. A U.S. partnership, S corporation,
U.S. trust (other than a trust that is
subject to sections 671 through 679 for
the PFIC stock), or U.S. 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
required to recognize any income under
section 1291.

When and Where To File

Attach Form 8621 to the shareholder's
tax return (or, if applicable, partnership
or exempt organization 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 tax
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 tax year are assets that produce
passive income or that are held for the
production of passive income.

Qualified Electing Fund (QEF)
Election

A PFIC is a QEF if a U.S. person who is
a direct or indirect shareholder of the
PFIC elects (under section 1295(b)) to
treat the PFIC as a QEF and complies
with the requirements described in
section 1295(a)(2) . See the instructions
for Election A, later, for information on
making this election.

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 recognize gain on the
sale or disposition 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.

DRAFT AS OF
August 31, 2018

Basis for measuring assets. When
determining PFIC status using the asset
test, a foreign corporation may use
adjusted basis if:
1. The corporation is not publicly
traded for the tax year and
2. The corporation (a) is a controlled
foreign corporation within the meaning
of section 957 (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 the stock of another
corporation is a PFIC, the foreign
corporation is treated as if it held its
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
treated as a PFIC with respect to the
shareholder under section 1297(d).

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 of the QEF and as
long-term capital gain its pro rata share
of 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 B) until the QEF election is
terminated.
If the QEF election is not made with
respect to the first year of the
shareholder’s holding period in the
PFIC, the shareholder may be able to
make a deemed sale election (Election
D) or deemed dividend election
(Election E) (if eligible). If the
shareholder properly makes a deemed
sale election or deemed dividend
election in connection with its QEF
election, then the PFIC will become a
pedigreed QEF (as defined in
Regulations section 1.1291-9(j)(2)(ii))
with respect to the shareholder.
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 make a
mark-to-market election with respect to
the PFIC, or
2. The PFIC is an unpedigreed QEF
(as defined in Regulations section
1.1291-9(j)(2)(iii)).

-2-

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 of 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
separate tax and interest charge set
forth in section 1291(c).
See the instructions for Part V, later.

Exempt organizations. If a
shareholder of a PFIC is a tax exempt
organization, the rules of section 1291
will apply only if a dividend from the
PFIC would be taxable to the
shareholder under subchapter F.
Coordination of mark-to-market regimes with section 1291.
Shareholders of a PFIC that is marked
to market under section 1296 or any
other Code provision may be subject to
section 1291 in the first tax year in

which the shareholder marks to market
the PFIC stock. See Regulations
sections 1.1291-1(c)(4) and 1.1296-1(i).

Mark-to-Market Election

A U.S. shareholder of a PFIC may elect
to mark-to-market the PFIC stock under
section 1296 if the stock is “marketable
stock.” See the instructions for Election
C later for information on making this
election.

may apply in the year that a mark-tomarket election is made.
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).

1. The corporation’s applicable
insurance liabilities make up at least
10% of its total assets; and
2. Based on the applicable facts
and circumstances, the corporation is
predominantly engaged in an insurance
business, and its failure to satisfy the
25% threshold is due solely to
runoff-related or rating-related
circumstances involving such insurance
business.

DRAFT AS OF
August 31, 2018

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 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(d).

For additional information, including
special rules for RICs that own PFIC
stock, see Regulations section 1.1296-1
and 1.1296-2.

Tax Consequences
After a PFIC shareholder elects to mark
the stock to market under section 1296,
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 tax 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
for prior tax years over the amount
allowed such PFIC shareholder as a
deduction for a loss with respect to such
stock for prior tax years.
See the instructions for Part II,
Election C, and Part IV, later, for more
information, including special rules that

Additional Information
Required

Reportable transaction disclosure
statement. A 10-percent shareholder
(by vote or value) of a QEF also may be
required to file Form 8886 if the QEF is
considered to have participated in a
reportable transaction pursuant to
Regulations section 1.6011-4(c)(3)(i)
(G). See Form 8886, Reportable
Transaction Disclosure Statement, and
Regulations section 1.6011-4 for
additional information.

Specific Instructions
Important: All line references to Form
1120 and Form 1040 are to the 2018
forms. Other entities should use the
comparable line on their tax return.

Excepted Specified
Foreign Financial Assets
Reported

Check this box only if the Form 8621
filer also files Form 8938, Statement of
Specified Foreign Financial Assets, for
the tax year and includes this form in the
total number of Forms 8621 reported on
line 4 of Part IV, Excepted Specified
Foreign Financial Assets, of Form 8938.
For more information, see the
Instructions for Form 8938, generally,
and in particular, Duplicative Reporting
and the specific instructions for Part IV,
Excepted Specified Foreign Financial
Assets.

Election To Be Treated as
a Qualifying Insurance
Corporation
Who may make the election. A U.S.
person that is a shareholder of a
corporation that fails to qualify as a
qualifying insurance corporation (QIC)
(as defined in section 1297(f)(1)) solely
because its applicable insurance
liabilities make up 25% or less of its total
assets may elect to treat the stock as
stock of a qualifying insurance
corporation if:
-3-

When to make the election.
Generally, the shareholder must make
this election by the due date, including
extensions, of the shareholder’s tax
return for the tax year for which the
taxpayer is relying on the alternative
facts and circumstances test to meet
the definition of a qualifying insurance
corporation.
How to make the election. Follow
these steps to make the election.
1. Check the box on page 1 of Form
8621.
2. Provide the identifying
information for the shareholder and the
foreign corporation (Name, Address,
Identifying Number (if any)) only. You do
not have to complete any other part of
the Form 8621 if you are only filing the
form to make this election.

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
(EIN).
Reference ID number. A reference ID
number is required in the applicable
entry space above Part I of the form only
in cases where no EIN was entered for
the PFIC, QEF, or QIC. However, filers
are permitted to enter both an EIN and a
reference ID number. If applicable, enter
the reference ID number (defined
below) you have assigned to the PFIC,
QEF, or QIC.
A “reference ID number” is a number
established by or on behalf of the U.S.
person identified at the top of page 1 of
the form that is assigned to a PFIC,
QEF, or QIC with respect to which Form
8621 reporting is required. These

numbers are used to uniquely identify
the PFIC, QEF, or QIC in order to keep
track of the entity from tax year to tax
year. The reference ID number must
meet the requirements set forth below.
Note. Because reference ID numbers
are established by or on the behalf of a
U.S. person filing Form 8621, there is no
need to apply to the IRS to request a
reference ID number or for permission
to use these numbers.

applicable entry space just below. In
subsequent years, the Form 8621 filer
may continue to enter both the EIN and
the reference ID number, but must enter
at least the EIN.
You must correlate the reference ID
numbers as follows: New reference ID
number [space] Old reference ID
number. If there is more than one old
reference ID number, you must enter a
space between each such number. As
indicated above, the length of a given
reference ID number is limited to 50
characters and each number must be
alphanumeric and no special characters
are permitted.

required to complete Part I unless the
indirect shareholder:
Is treated as receiving an excess
distribution from the PFIC;
Is treated as recognizing gain that is
treated as an excess distribution as a
result of a disposition of the PFIC;
Is required to include an amount in
income under section 1293(a) with
respect to the PFIC, unless another
shareholder through which the indirect
shareholder owns the PFIC files under
section 1298(f) with respect to the PFIC
and no other exception applies;
Is required to include an amount in
income under section 1296(a) with
respect to the PFIC, unless another
shareholder through which the indirect
shareholder owns the PFIC files under
section 1298(f) with respect to the PFIC;
or
Is required to report the status of a
section 1294 election with respect to the
PFIC.
See Regulations section 1.1298-1(b)
(2) for further information.

DRAFT AS OF
August 31, 2018

Note. In general, the reference ID
number assigned to a PFIC, QEF, or
QIC on Form 8621 has relevance only
to Form 8621 and should not be used
with respect to the PFIC, QEF, or QIC
on other IRS forms.

Requirements. The reference ID
number must be alphanumeric (defined
below) and no special characters or
spaces are permitted. The length of a
given reference ID number is limited to
50 characters.
For these purposes, the term
“alphanumeric” means the entry can be
alphabetical, numeric, or any
combination of the two.
The same reference ID number must
be used consistently from tax year to tax
year with respect to a given PFIC, QEF,
or QIC. If for any reason a reference ID
number falls out of use (for example, the
PFIC, QEF, or QIC no longer exists due
to disposition or liquidation), the
reference ID number used for that PFIC,
QEF, or QIC cannot be used again for
another PFIC, QEF, or QIC for purposes
of Form 8621 reporting.
There are some situations that
warrant correlation of a new reference
ID number with a previous reference ID
number when assigning a new
reference ID number to a PFIC, QEF, or
QIC. For example:
In the case of a merger or acquisition,
a Form 8621 filer must use a reference
ID number which correlates the previous
reference ID number with the new
reference ID number assigned to the
PFIC, QEF, or QIC.
In the case of an entity classification
election that is made on behalf of a
PFIC, QEF, or QIC on Form 8832,
Regulations section 301.6109-1(b)(2)(v)
requires the PFIC, QEF, or QIC to have
an EIN for this election. For the first year
that Form 8621 is filed after an entity
classification election is made on behalf
of the PFIC, QEF, or QIC on Form 8832,
the new EIN must be entered in the
applicable entry space above Part I of
Form 8621 and the old reference ID
number must be entered in the

Note. This correlation requirement
applies only to the first year the new
reference ID number is used.

Part I. Summary of Annual
Information
Who Must Complete Part I

In general, all shareholders required to
file Form 8621 under section 1298(f)
and the regulations thereunder must
complete Part I. However, a shareholder
of a PFIC that is marked to market
under a Code provision other than
section 1296 (such as section 475) is
not required to complete Part I unless it
is subject to section 1291 with respect
to the PFIC pursuant to Regulations
section 1.1291-1(c)(4)(ii). See TD 9806.
Shareholders filing a joint return may
file a single Form 8621 with respect to a
single PFIC in which each joint filer
owns an interest.
Shareholders that are the first U.S.
person in the chain of ownership.
Regulations section 1.1298-1 generally
requires a U.S. person that is at the
lowest tier in a chain of ownership (that
is, the first U.S. person in the chain of
ownership) and that is a shareholder
(including an indirect shareholder) of a
PFIC to complete Part I for each PFIC
owned by that shareholder during the
shareholder’s tax year.
Specific filing requirements apply
with respect to domestic grantor trusts,
as described further in these
Instructions.
Exceptions to these filing
requirements are described below
under “Exceptions to Filing Part I.”
Shareholders that are not the first
U.S. person in the chain of ownership. In general, an indirect
shareholder that is not the first U.S.
person in the chain of ownership is not
-4-

Domestic grantor trusts. In general,
a U.S. grantor of a domestic grantor
trust that owns an interest in a PFIC
(directly or indirectly) through one or
more foreign entities must complete
Part I with respect to that PFIC interest.
Regulations sections 1.1291-1(b)(8)(iii)
(D) and 1.1298-1(b)(1)(iii). In those
circumstances, a domestic grantor trust
is not required to complete Part I with
respect to the stock of the PFIC that is
owned by the grantor. For certain
exceptions, see Regulations section
1.1298-1(b)(3)(i).

Exceptions to Filing Part I

A shareholder is exempt from
completing Part I if it meets one of the
exceptions described below.
Special rules for estates and trusts.
Certain U.S. grantors and beneficiaries
of estates and trusts may qualify for an
exception to filing Part I.
A U.S. grantor of a domestic grantor
trust is not required to complete Part I if
the trust is a domestic liquidating trust or
a widely held fixed investment trust, as
described in Regulations section
1.1298-1(b)(3)(i). In these
circumstances, the domestic grantor
trust is required to complete Part I.
In certain situations, a shareholder
who is a member or beneficiary of (or
participant in) an arrangement treated
as a foreign pension fund under a U.S.
income tax treaty that owns an interest
in a PFIC is not required to complete
Part I with respect to the PFIC.

Regulations sections 1.1291-1(b)(8)(iii)
(D) and 1.1298-1(c)(4).
A U.S. beneficiary of a foreign
non-grantor trust or foreign estate is not
required to complete Part I with respect
to the stock of the PFIC that is owned by
the trust or estate unless it has made a
QEF or section 1296 mark-to-market
election, received an excess
distribution, or recognized gain treated
as an excess distribution with respect to
the stock of the PFIC. Regulations
section 1.1298-1(b)(3)(iii).

Line 2. Provide the date during the tax
year that the shares were acquired, if
applicable.
Line 3. List the number of shares held
at the end of the tax year.
Line 4. Indicate the value of the shares
held at the end of the tax year.
Shareholders may rely upon periodic
account statements provided at least
annually to determine the value of a
PFIC unless the shareholder has actual
knowledge or reason to know based on
readily accessible information that the
statements do not reflect a reasonable
estimate of the PFIC’s value.

the income into account under the rules
applicable to inclusions of income from
the 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.

DRAFT AS OF
August 31, 2018

Exempt organizations. In general, if
a shareholder of a PFIC is a tax-exempt
organization, the shareholder is
required to complete Part I only if
income derived with respect to the PFIC
stock would be taxable to the
shareholder under subchapter F.
Regulations section 1.1298-1(c)(1).
Exception if aggregate value of
shareholder’s PFIC stock is $25,000
or less. A shareholder is not required
to complete Part I with respect to a
specific section 1291 fund if the
shareholder meets the $25,000
exception on the last day of the
shareholder’s tax year. For purposes of
determining whether a shareholder
satisfies the $25,000 threshold, the
shareholder takes into account all PFIC
stock (QEFs, section 1291 funds, and
PFIC stock subject to a section 1296
mark-to-market election) owned directly
or indirectly other than PFIC stock
owned through another U.S. person or
PFIC stock owned through another
PFIC. Shareholders filing a joint return
have a combined threshold of $50,000
instead of $25,000 for purposes of this
exception.
For more information, see
Regulations section 1.1298-1(c)(2).
Exception if the value of shareholder’s indirect PFIC stock is $5,000 or
less. A shareholder is not required to
complete Part I with respect to indirect
ownership of a specific section 1291
fund if the shareholder meets the
$5,000 exception with respect to the
section 1291 fund on the last day of the
shareholder’s tax year. For purposes of
determining whether a shareholder
satisfies the $5,000 threshold, the
shareholder takes into account only the
value of the shareholder’s proportionate
share of the section 1291 fund.
For more information, see
Regulations section 1.1298-1(c)(2).

Line Instructions
Line 1. Describe each class of shares
held by the shareholder.

Line 5. Indicate the type of PFIC and
the amount of any excess distribution or
gain treated as an excess distribution
under section 1291, inclusion under
section 1293, and inclusion or
deduction under section 1296.

Note. In cases in which a shareholder’s
ownership interest in a PFIC is not
denominated in shares, the shareholder
must provide the information for lines 1
through 4 based on its form of
ownership in the PFIC.

Part II. 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.
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 not
taxable under section 1291 is not
subject to a QEF election made by a
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 tax year ends. The interest
holder in the pass-through entity takes
-5-

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 tax 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 tax year in which the
election is made and for each
subsequent tax year of the foreign
corporation ending with or within a tax
year of the shareholder for which the
election is effective.
Retroactive election. A shareholder
may make a QEF election for a tax 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 tax 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 tax 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 tax year to
which the statement will apply. For
required content of the statement and
other information, see Regulations
section 1.1295-3(c).

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 III and
2. Attach Form 8621 to a timely filed
tax return (or, if applicable, a
partnership or exempt organization
return).

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).

DRAFT AS OF
August 31, 2018

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).
For more information on making a
retroactive election, see Regulations
section 1.1295-3.

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 II of Form
8621.
2. Complete the applicable lines of
Part III. 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 (or, if applicable, partnership
or exempt organization return).

Annual Election Requirements of
the PFIC or Intermediary

PFIC Annual Information Statement.
For each year of the PFIC ending in a
tax year of a shareholder to which the
QEF 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 tax 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 tax 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 tax years
subject to the section 1295 election, the
shareholder must keep copies of all
Forms 8621, attachments, and PFIC
-6-

B. Election To Extend Time for
Payment of Tax
Who May Make the Election

A shareholder of a QEF may make
Election B 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. This interest must be paid on the
termination of the election (see the
instructions for Part VI, line 24, later).
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 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.

How To Make the Election
Take these steps to make this election.
1. Check box B in Part II.
2. Complete lines 8a through 9c of
Part III.
For more information on making
Election B, see Temporary Regulations
section 1.1294-1T.
See Part VI for annual reporting
requirements for outstanding section
1294 elections.

C. Election To Mark-to-Market
PFIC Stock (Section 1296
Election)
Who May Make the Election
Generally, an election to mark-to-market
PFIC stock under section 1296 may be
made by:
A U.S. person who owns (or is treated
as owning) “marketable stock” (defined
earlier) in a PFIC at the close of such
person's tax year or
A RIC that meets the requirements of
section 1296(e)(2).

D. Deemed Sale Election in
Connection with a QEF Election

E. Deemed Dividend Election in
Connection with a QEF Election

Who May Make the Election

Who May Make the Election

This is a deemed sale election under
section 1291(d)(2)(A). 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.

This is a deemed dividend election
under section 1291(d)(2)(B). 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).

DRAFT AS OF
August 31, 2018

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 under section 1296. 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
Take these steps to make this election.
1. Check box C in Part II.
2. Complete either: (i) Part V to
calculate the amount due under section
1291 (when required, as generally
described in the next paragraph) or (ii)
Part IV to calculate the gain or loss on
the stock in all other cases.
Coordination of Election C with section 1291 for first year of election. In
general, when a shareholder makes a
mark-to-market election for PFIC stock
in a year other than the first year in
which the shareholder holds stock in the
PFIC and no QEF election is in effect,
the PFIC stock is treated as sold at fair
market value on the last day of the tax
year for which the election is made, and
the gain is treated as an excess
distribution subject to section 1291. In
addition, any distributions made during
the year with respect to the PFIC stock
are subject to section 1291. See section
1296(j) and Regulations sections
1.1296-1(i).

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 1.1291-10(f).
Solely for purposes of applying the
PFIC rules, the shareholder's 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.

A shareholder making this election is
treated as receiving a dividend equal to
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 D earlier). 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

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 of the original return) for
the tax year that includes the
qualification date.

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 foreign
corporation was a PFIC and while the
shareholder held the stock (but without
regard to whether the earnings relate to
a period in which the PFIC was a CFC).
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).
Solely for purposes of applying the
PFIC rules, the shareholder's holding
period begins on the qualification date.

How To Make the Election

When To Make the Election

When To Make the Election

Take these steps to make this election.
1. Check box D in Part II.
2. Enter the gain or loss on line 15f
of Part V.
3. If a gain is entered, complete
line 16 to report the tax and interest due
on the excess distribution.

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 of the original return) for
the tax year that includes the
qualification date.

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

Take these steps to make this election.

-7-

How To Make the Election

1. Check box E in Part II.
2. Enter the dividend on line 15e of
Part V as an excess distribution.
3. Complete line 16 to figure the tax
and interest due on the excess
distribution.
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.

Such persons may elect to treat the
stock of the foreign corporation as sold
for its fair market value on the last day of
the last tax year of the foreign
corporation in which it was treated as a
PFIC (termination date) or the first day
on which the qualified portion of the
shareholder’s holding period in the
section 1297(e) PFIC begins
(qualification date), as applicable.

treated as a PFIC with respect to the
U.S. shareholder under section 1297(d).

Special Rules
A shareholder making this election is
treated as receiving a dividend of its pro
rata share of the post-1986 earnings
and profits (defined later) of the section
1297(e) PFIC on the CFC qualification
date (defined later). The deemed
dividend is taxed under section 1291 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 CFC
qualification date. After the deemed
dividend election, the shareholder’s
stock is not treated as stock in a PFIC.

DRAFT AS OF
August 31, 2018

For more information on making
Election E, see Regulations section
1.1291-9.

F. Deemed Sale Election with
Respect to a Former PFIC or
“Section 1297(e) PFIC”
Who May Make the Election
This is a deemed sale election under
section 1298(b)(1) and Regulations
section 1.1297-3(b) or 1.1298-3(b). 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 a
PFIC, but that is not treated as a PFIC
with respect to the U.S. shareholder
under section 1297(d).

Special Rules

The gain from the deemed sale 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 F.
Solely for purposes of applying the
PFIC rules, the new holding period of
the stock begins on the date after the
termination date or on the qualification
date, as applicable.
Election F 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 Regulations sections
1.1297-3(b) (section 1297(e) PFIC), and
1.1298-3(b) (former PFIC).

When To Make the Election
This election must be made by the due
date of the shareholder’s original tax
return (or by filing an amended return
within 3 years of the due date, as
extended under section 6081, of the
original return) for the tax year that
includes, as appropriate, either the
termination date or qualification date.
However, see Form 8621-A (and
Regulations sections 1.1297-3(e) and
1.1298-3(e)) if the 3-year period has
expired.

How To Make the Election
Take these steps to make this election.
1. Check box F in Part II .
2. Enter the gain or loss on line 15f
of Part V. If a gain, complete the rest of
Part V.

G. Deemed Dividend Election
With Respect To a “Section
1297(e) PFIC”
Who May Make the Election
This is a deemed dividend election
under section 1298(b)(1) and
Regulations section 1.1297-3(c). This
election may be made by a shareholder
that is a U.S. shareholder (as defined in
section 951(b)) of a foreign corporation
that is a CFC and a PFIC, but that is not
-8-

For purposes of this election, the
following rules apply:
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 (as defined below).
See Regulations section 1.1297-3(c)(6).
Solely for purposes of applying the
PFIC rules, the shareholder’s new
holding period begins on the CFC
qualification date.

When To Make the Election
Make this election by the due date of
the shareholder’s original return (or by
filing an amended return within 3 years
of the due date, as extended under
section 6081, of the original return) for
the tax year that includes the first day on
which the qualified portion of the
shareholder’s holding period in the PFIC
begins, as determined under section
1297(d). However, see Form 8621-A
(and Regulations section 1.1297-3(e)) if
the 3-year period has expired.

How To Make the Election
Take these steps to make this election.
1. Check box G in Part II.
2. Enter the excess distribution on
line 15e of Part V.
3. If the excess distribution is
greater than zero, complete line 16 to
figure the tax and interest due on the
excess distribution.
4. Attach to Form 8621 the
information specified below.

Attachments
The shareholder must attach a
statement to Form 8621 that shows the
calculation of its pro rata share of the
post-1986 earnings and profits of the
section 1297(e) PFIC (as defined in
Regulations section 1.1291-9(j)(2)(v))
that is treated as distributed to the
shareholder on the CFC qualification
date.
The CFC qualification date, as
defined in Regulations section
1.1297-3(d), for the Section 1297(e)
PFIC.
The beginning and ending dates of
the tax year of the shareholder in which
the CFC qualification date falls (that is,
the election year).
The shareholder’s pro rata share of
the post-1986 earnings and profits of
the Section 1297(e) PFIC that is treated
as distributed to the shareholder on the
CFC qualification date, including a
schedule that shows the calculation of
this amount as required under
Regulations section 1.1297-3(c)(5)(ii).
In addition, if the shareholder filed a
Form 5471 for the Section 1297(e) PFIC
for the election year, attach Schedule J
(Form 5471).

of a foreign corporation that no longer
qualifies as a PFIC under either the
income or asset test of section 1297(a)
if the foreign corporation was a CFC
during its last tax year as a PFIC.

Special Rules
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 former
PFIC on the termination date (defined
below). The deemed dividend is taxed
under section 1291 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 termination date. After the deemed
dividend election, the shareholder’s
stock is not treated as stock in a PFIC.

Attachments
The shareholder must attach a
statement to Form 8621 that shows the
calculation of its pro rata share of the
post-1986 earnings and profits of the
former PFIC that is treated as
distributed to the shareholder on the
termination date.
The termination date, as defined in
Regulations section 1.1298-3(d), for the
former PFIC.
The beginning and ending dates of
the tax year of the shareholder in which
the termination date falls (that is, the
election year).
The shareholder’s pro rata share of
the post-1986 earnings and profits of
the former PFIC that is treated as
distributed to the shareholder on the
termination date, including a schedule
that shows the calculation of this
amount as required under Regulations
section 1.1298-3(c)(5)(ii). In addition, if
the shareholder filed a Form 5471 for
the former PFIC for the election year,
attach Schedule J (Form 5471).

DRAFT AS OF
August 31, 2018

The post-1986 earnings and profits
may be reduced (but not below zero) by
the amount that the shareholder
satisfactorily shows was previously
included in its income or in the income
of another U.S. person. The shareholder
shows 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.
A description of the transaction in
which the shareholder acquired the
stock of the Section 1297(e) PFIC from
the other U.S. person.
The tax year in which the amount was
previously included in income.
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 G, see Regulations section
1.1297-3(c).

H. Deemed Dividend Election
With Respect To a Former PFIC
Who May Make the Election
This is a deemed dividend election
under section 1298(b)(1) and
Regulations section 1.1298-3(c). This
election may be made by a shareholder

For purposes of this election, the
following rules apply:
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 (as defined below).
See Regulations section 1.1298-3(c)(6).
Solely for purposes of applying the
PFIC rules, the shareholder’s new
holding period begins on the day
following the termination date.

When To Make the Election
This election must be made by the due
date of the shareholder’s original return
(or by filing an amended return within 3
years of the due date, as extended
under section 6081, of the original
return) for the tax year that includes the
first day on which the qualified portion of
the shareholder’s holding period in the
PFIC begins, as determined under
section 1297(d). However, see Form
8621-A (and Regulations section
1.1298-3(e)) if the 3-year period has
expired.

How To Make the Election
Take these steps to make this election.
1. Check box H in Part II.
2. Enter the excess distribution on
line 15e of Part V.
3. If the excess distribution is
greater than zero, complete line 16 to
figure the tax and interest due on the
excess distribution.
4. Attach to Form 8621 the
information specified below.
-9-

The post-1986 earnings and profits
may be reduced (but not below zero) by
the amount that the shareholder
satisfactorily shows was previously
included in its income or in the income
of another U.S. person. The shareholder
shows 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 former PFIC from the other
U.S. person.
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 H, see Regulations section
1.1298-3(c).

Part III. 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 III. 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 III
its pro rata share of ordinary earnings
and net capital gain and also must
comply with the section 1295 annual
reporting requirements.

as distributed out of the most recently
accumulated earnings and profits. This
amount is not taxable to you if you can
satisfactorily demonstrate that the
excess was previously included in your
income or the income of another U.S.
person. This is demonstrated by
attaching a statement to Form 8621 that
includes the information listed under
Attachments for Election E, earlier. If the
excess has not been previously
included in your income or the income
of another U.S. person, then the excess
is subject to tax according to the rules of
section 301(c).

As discussed earlier in Mark-toMarket Election, a shareholder may be
required to complete Part V, rather than
Part IV, in the first year in which a markto-market election is made. See section
1296(j) and Regulations sections
1.1291-1(c)(4) and 1.1296-1(i).

Lines 10a Through 12

DRAFT AS OF
August 31, 2018

All QEF shareholders complete lines
6a through 7c. If you are making
Election B, also complete lines 8a
through 9c.

Lines 6 and 7

Lines 6a and 7a. Enter on lines 6a and
7a, 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 earlier.
Lines 6b and 7b. Your share of the
ordinary earnings and net capital gain of
the QEF is reduced by the amounts you
include in income under section 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 6c. This amount is treated as
ordinary income on your tax return.
For a noncorporate taxpayer, include
this amount as “other income” on
Schedule 1 (Form 1040), line 21, or on
the comparable line of other
noncorporate tax returns. For a
corporate taxpayer, include this amount
as “other income” on line 10 of Form
1120, or on the comparable line of other
corporate tax returns.
Line 7c. 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
three options a QEF may use to report
and calculate capital gain.

Line 8

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 8b) exceeds the amount included
in income (line 8a), the excess is treated

Line 9

Line 9a. Enter the total tax on your total
taxable income (including your share of
undistributed earnings of the QEF) for
the tax year (for example, from Form
1120, Schedule J, line 11; or Form
1040, line 15).
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 9b. Calculate your total tax as if
your total taxable income did not include
your share of the undistributed earnings
of the QEF (line 8e). Enter this amount
on line 9b.
Line 9c. For corporations, enter this
deferred tax on Form 1120, Schedule J,
in brackets to the left of the entry space
for line 11. Subtract this deferred tax
amount from the total of lines 7, 8, and
10, and enter the difference on line 11.
For individuals, enter this deferred
tax on Form 1040 in brackets to the left
of the entry space for line 15. Subtract
this deferred tax amount from the total
of lines 13 and 14, and enter the
difference on line 15.

Part IV. Gain or (Loss)
From a Section 1296
Mark-to-Market Election

A shareholder that has made a
mark-to-market election under section
1296 with respect to PFIC stock
completes lines 10a through 12 with
respect to PFIC stock that the
shareholder holds at the close of its tax
year, and lines 13a through 14c with
respect to PFIC stock that it sold or
disposed of during its tax year.

-10-

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 treated as
ordinary income.
If the adjusted basis of the stock is
more than the fair market value as of the
close of the tax year, the excess is
allowed as a deduction, but only to the
extent of the lesser of:
1. The amount of the excess
(line 10c) or
2. The unreversed inclusions
(defined below) with respect to such
stock (line 11).
This amount is treated as an ordinary
loss and as a deduction allowable in
computing adjusted gross income.
Unreversed inclusions. Unreversed
inclusions are the excess of the
amounts that were included in income
under the section 1296 mark-to-market
rules for prior tax years over the
amounts allowed as a deduction under
the section 1296 mark-to-market rules
for prior tax years. See section 1296(d)
and Regulations section 1.1296-1(a)(3).
Lines 10c and 12. 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. However, Regulated
Investment Companies, for purposes of
section 851(b), should treat amounts
included in income as a dividend.
If a CFC makes a section 1296
mark-to-market election with respect to
a PFIC in which it owns stock, any
line 10c gain is treated as foreign
personal holding company income and
any line 12 loss is treated as a
deduction that is allocable to foreign
personal holding company income.

Lines 13 through 14c

Complete lines 13 through 14c if you
sold or otherwise disposed of any
section 1296 stock during the tax year.
For purposes of lines 13 through 14c,
“section 1296 stock” is any stock for
which the taxpayer has made a
mark-to-market election pursuant to
section 1296(a), which is in effect for the
tax year and for which the coordination

rule of Regulations section 1.1296-1(i)
does not apply.
Line 13c. If the fair market value of the
stock on the date of sale or disposition
(line 13a) is more than the U.S. person's
adjusted basis in the stock on the date
of sale or disposition (line 13b), the
line 13c excess is a gain and is treated
as ordinary income. Corporations and
individuals should include the gain on
the “other income” line of their tax
returns. Other entities should include
this amount on the comparable line of
their tax return. However, Regulated
Investment Companies, for purposes of
section 851(b), should treat this amount
as a dividend.
If the adjusted basis of the stock
(line 13b) is more than its fair market
value (line 13a), the excess is a loss
and is entered on line 13c as such.
Furthermore, the filer must complete
lines 14a and 14b, and, if applicable,
line 14c.

Part V. Distributions From
and Dispositions of Stock
of a Section 1291 Fund

See Section 1291 Fund, earlier, for the
definition of a section 1291 fund and
also for a brief summary of the tax
consequences for shareholders of a
section 1291 fund.

line 15a 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 15a amount
on Form 1040, line 3b (and, if
applicable, on Schedule B (Form 1040),
line 5).

DRAFT AS OF
August 31, 2018

Line 14a. Enter any unreversed
inclusions with respect to the stock (see
definition earlier).
Line 14b. Enter the loss from line 13c,
but only to the extent of unreversed
inclusions on line 14a. This loss is
treated as ordinary loss. Corporations
and individuals should include the loss
on the “other income” line of their tax
returns. Other entities should include
this amount on the comparable line of
their tax return.
Line 14c. Enter the amount by which
the loss on line 13c is more than the
unreversed inclusions. This amount is
subject to the rules generally applicable
to losses provided elsewhere in the
Code and regulations thereunder. See
Regulations section 1.1296-1(c)(4)(ii).
Multiple dispositions. In the case of
multiple dispositions, attach a statement
for each disposition using the same
format shown on lines 13 through 14c.
Then:
Enter “multiple” on lines 13a, 13b,
and 14a.
Enter your net ordinary gains on
line 13c (do not enter any net losses on
line 13c).
Enter your net ordinary losses on
line 14b.
Enter your net “other” losses on
line 14c.
For more information relating to
mark-to-market elections under section
1296, see Regulations sections
1.1296-1 and 1.1296-2.

Also, see Section 1291 Fund and
Mark-to-Market Election, earlier, for a
brief discussion of when a shareholder
may be subject to section 1291 in the
year that it makes a mark-to-market
election under any provision of the
Code, including section 1296.

Complete a separate Part V 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 15a through 15e
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 15f for each block of
shares that has the same holding
period.

Line 15
Lines 15a and 15b
Enter your total distributions from the
section 1291 fund with respect to the
applicable stock for the periods
indicated.
Note. A 10%-or-greater domestic
corporation shareholder might be able
to claim a deemed paid foreign tax
credit under section 902 with respect to
a distribution from a section 1291 fund
in the fund’s tax year beginning before
January 1, 2018. See Form 1118,
Foreign Tax Credits — Corporations, to
calculate the taxes deemed paid and
the gross-up amount.
Line 15a. If the holding period of the
applicable stock began in the current
tax year, there is no excess distribution
and you should complete Part V as
follows: Enter on line 15a 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 V. If you did dispose of that stock
during the tax year, skip lines 15b
through 15e and complete lines 15f and
16.
If the holding period of the applicable
stock began in the current tax year, the
-11-

Line 15c. Divide the amount on
line 15b 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 15b by that number.

Line 15e

Nonexcess distribution. The
nonexcess distribution is the lesser of
line 15a or line 15d. 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 3b (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 15f. Gain recognized on the
disposition of stock of a section 1291
fund is treated as an excess distribution.
Loss realized on the disposition of stock
of a section 1291 fund is not taken into
account under section 1291 and thus,
for example, does not reduce the
amount of total gain subject to section
1291. However, the loss may be
recognized under another provision of
the Code, and reported accordingly.
Stock of a section 1291 fund is
considered disposed of if it is sold,
transferred, or pledged.

Line 16
Lines 16a and 16b
Determine the taxation of the excess
distribution on a separate sheet and
attach it to Form 8621. Divide the
amount on line 15e or 15f, whichever
applies, by the number of days in your
holding period. The holding period of
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 E) is made. See the
instructions earlier for Election E.
The mark-to-market election (Election
C) is made or was made in a prior year
(see section 1291(a)(3)(A)(ii)).
The deemed dividend election with
respect to a Section 1297(e) PFIC
(Election G) or with respect to a Former
PFIC (Election H) is made. See the
instructions for Election G and Election
H, earlier.

Line 16d. 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 withholding
taxes paid by the shareholder on the
distribution and, in the case of the tax
year of a section 1291 fund that begins
before January 1, 2018, for
10%-or-greater domestic corporate
shareholders, any taxes deemed paid
under section 902. These 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, earlier. 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.

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.
The amount of interest is determined
by using the rates and methods under
section 6621. See section 1291(c)(3) for
more information regarding the
computation of interest, and also see
Rev. Rul. 2018-18, 2018-26 I.R.B. 758
(or successor Revenue Ruling), for a list
of historical interest rates under section
6621.
For individuals, include the interest
as part of the total for Schedule 4 (Form
1040), line 62. Check box c on
Schedule 4 (Form 1040), line 62, and
enter “1291INT” and the amount of the
interest in the entry space for that box.
For corporations, include the interest
as part of the total for Form 1120,
Schedule J, line 9f. See Instructions for
Form 1120, Schedule J, line 9f.

DRAFT AS OF
August 31, 2018

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 16b.
This amount is treated as ordinary
income (for example, individuals and
corporations should enter this amount
on the “other income” line of their tax
return).

Line 16c. 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 16a) 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 16c.
The following table sets forth the
highest rate of tax in effect under
section 1 (applicable to individuals) for
calendar years 1987 through 2018.

Tax Rates
Tax year(s) (based
on calendar year
taxpayer)

Highest rate of tax in
effect under IRC
section 1

2018

37%

2013–2017

39.6%

2003–2012

35%

2002

38.6%

2001

39.1%

1993–2000

39.6%

1991–1992

31%

1988–1990

28%

1987

38.5%

Line 16e. This amount is the total
increase in tax and is included on your
tax return as additional taxes.
For individuals, include the amount
as part of the total for Form 1040,
line 11a. Check box 3 on line 11a and
enter “1291TAX” in the entry space for
that box.
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 16f. 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
-12-

Part VI. Status of Prior
Year Section 1294
Elections and Termination
of Section 1294 Elections

Each person who has made a section
1294 election must (1) complete lines
17 through 20 to annually report the
status of that election and (2) complete
lines 21 through 24 to report the
termination of any section 1294 election
that occurred during the tax year. See
Temporary Regulations section
1.1294-1T(h).

Line 17. Enter the last day of each tax
year for which you made a section 1294
election that is outstanding. Enter as
MM/DD/YYYY. Do not include an
election made in the current tax year.
Line 18. Enter the undistributed
earnings of the QEF in the year for
which the payment of tax was extended
by the section 1294 election entered on
line 17. If the election was partially
terminated in a prior year, enter the
remaining undistributed earnings.
Line 19. Enter the tax for which
payment was extended by the section
1294 election entered on line 17. If the
election was partially terminated in the
previous tax year, enter the balance of
the deferred tax from line 25 of the prior
year Form 8621.
Line 20. 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 21. Enter the event(s) that
occurred during the tax year that
terminated one or more of the section
1294 elections reported on line 17. 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).

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).

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, include the interest
from line 24 as part of the total for
Schedule 4 (Form 1040), line 62. Check
box c on Schedule 4 (Form 1040),
line 62, and enter “1294INT” and the
amount of the interest in the entry space
for that box.

DRAFT AS OF
August 31, 2018

Line 22. Enter the earnings distributed
or deemed distributed as a result of the
events described on line 21. Earnings
are treated as distributed out of the
most recently accumulated earnings
and profits. Accordingly, an event will
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

Line 23. Enter the deferred tax due
from the termination of the section 1294
election. The deferred tax entered on
line 19 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 19 by a fraction, of which the
numerator is the amount entered on
line 22 and the denominator is the
amount entered on line 18. 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 11. Also enter the
deferred tax to the left of line 11 and
label it as “Sec. 1294 deferred tax.”
For individuals, include the deferred
tax as part of the total for Schedule 4
(Form 1040), line 62. Check box c on
Schedule 4 (Form 1040), line 62 and
enter “1294DT” and the amount of the
deferred tax in the entry space for that
box.
Line 24. Enter the interest accrued on
the deferred tax. Interest accrues

-13-

Lines 25 and 26. Complete lines 25
and 26 only if a section 1294 election is
partially terminated. Enter on line 25 the
part of the deferred tax outstanding after
the partial termination of the section
1294 election. This amount should
equal line 19 minus line 23.
Note. As indicated in the line 19
instructions, for next year, be sure to
enter the line 25 amount of this year’s
Form 8621 on line 19 of next year’s
Form 8621.
Enter on line 26 the accrued interest
remaining after the partial termination of
the section 1294 election. This amount
should equal line 20 minus line 24.

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), 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. 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.
We may disclose your tax information to the Department of Justice for civil and criminal litigation, and to cities, states, the
District of Columbia, and U.S. possessions and commonwealths for use in administering their tax laws. We may also disclose
to foreign countries pursuant to a treaty, to federal and state agencies to enforce federal nontax criminal laws, or to federal law
enforcement and intelligence agencies to combat terrorism.

DRAFT AS OF
August 31, 2018

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 of 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 the estimated burden for business
taxpayers is approved under OMB control number 1545-0123. The estimated burden for all other taxpayers who file this form is
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Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we
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