On November 19, 2024 SEAT responded to U.S. Treasury’s request for comments about Form 8621. The “Outline” of our submission was:
Part A – The Governing Statute, Regulations, Directions To Form 8621 and Form 8621
Part B – The Purpose of The PFIC Rules
Part C – How the PFIC Rules Impact Americans Abroad
Part D – A Regulatory Fix for Americans Abroad and PFIC: How Treasury Can Allow Long Term Americans Abroad to Invest For Their Retirements Using Non-US Mutual Funds And Pensions
Part E – The IRS Instructions for Form 8621
Part F – Improvements to Form 8621
Our submission was grounded in the observation that:
The annual information reporting requirement (reflected in Form 8621) comes from IRC § 1298(f), which came into being on March 18, 2010 with the enactment of the HIRE Act (the annual requirement to file Form 8621 was suspended until tax year 2013, however — see Regs. § 1.1298-1T(c)(3)).
The law itself is quite vague and gives the IRS broad power. The law states:
(f) Reporting requirement
Except as otherwise provided by the Secretary, each United States person who is a shareholder of a passive foreign investment company shall file an annual report containing such information as the Secretary may require.
(g) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part.
https://www.law.cornell.edu/uscode/text/26/1298
Noting that IRC § 1298(f) gives the Treasury Secretary the authority to exempt Americans abroad from PFIC reporting, we outlined four specific recommendations that would exempt Americans abroad from the hell and expense of Form 8621.
SEAT’s recommendations are:
On Nov. 19/24 @SEATNow_org submitted a comment to Treasury about the #PFIC regime, Form 8621 along with recommendations for how the rules should apply (if at all) to #Americansabroad. Our submission included the four recommendations shown below. https://t.co/dCSE3SIaIE pic.twitter.com/nXpmH5ZR1n
— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) November 20, 2024
SEAT proposes four kinds of relief for Americans abroad …
1. Treasury should specifically state that if a U.S. citizen meets the “bona fide residence test” in IRC 911, that investing in any mutual fund that is organized under the laws of the country of residence should be deemed to NOT be PFICs. (Note that this is consistent with Treasury’s treatment of treaty nonresidents as per the Treasury Regulations.)
2. Treasury should specifically state that if a U.S. citizen meets the “bona fide residence test” in IRC 911, that participating in any pension plan that is organized under the laws of the country of residence should be deemed to NOT be PFICs (without regard to the existence and contents of any tax treaty). (Note that this is consistent with Treasury’s treatment of treaty nonresidents as per the Treasury Regulations.)
3. Treasury should specifically state that any investments held in a financial product identified in Annex II of FATCA IGAs should be deemed to NOT be subject to the PFIC reporting regime. (Example Annex II of the US Canada FATCA IGA found here … https://home.treasury.gov/system/files/131/FATCA-Agreement-Canada-2-5-2014.pdf)
4. In the event that Treasury does NOT recognize the important public policy objective of exempting U.S. citizens abroad from the PFIC regime (as per suggestions 1 2 and 3 above), SEAT urges Treasury to establish a threshold (indexed to inflation) of 1 million USD before any non-U.S. mutual fund or pension is required to be reported as a PFIC (raising the threshold from the current $25,000 USD).
Note that SEAT’s proposals (1 – 4 above) assume that non-U.S. mutual funds and non-U.S. pensions would be reported on Form 8938 as “Foreign Financial Assets”.
SEAT’s complete submission is available here:
