Tax treatment liquidating distribution foreign passive investment


For more information on Form 8949 and Schedule D (Form 1040), see Reporting Capital Gains and Losses in this chapter.

Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040).

Foreign Income & Taxpayers Before investing in foreign equities, U. taxpayers should consider the tax consequences that may apply to them. 954(h) and (i), is excluded from passive income for purposes of PFIC determination (Sec. When using the asset test to determine PFIC status, assets that produce both nonpassive and passive income are classified based on the relative proportion of income produced in each category (Notice 88-22). A shareholder of a PFIC is by default subject to the Sec. All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec. As a result of the highly punitive PFIC regime, a U. taxpayer will end up deferring taxes but also accruing interest charges on the taxes deemed to be owed in preceding tax years.

Moreover, when a foreign corporation is resident in a jurisdiction with which the United States has a comprehensive income tax treaty, the dividends distributed to its individual U. shareholders are eligible for reduced qualified dividend tax rates (currently taxed at a maximum federal income tax rate of 20 percent). shareholder, for the purpose of the CFC rules, is a U. person who owns, directly, indirectly or constructively, at least ten percent of the combined voting power with respect to the foreign corporation. shareholder would not be able to repatriate its profits at qualified dividend rates.

taxpayers can make timely qualifying electing fund or mark-to-market elections. taxpayers that desire to be taxed annually on income deemed to be received from their PFIC shares must make a timely QEF election.


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