This guide examines the complex tax regulations surrounding Passive Foreign Investment Companies (PFICs) and how they affect U.S. taxpayers.
As a U.S. taxpayer, your investments are not solely limited to domestic funds. In fact, foreign investments were historically quite common.
But to encourage taxpayers to invest in more U.S.-based mutual funds, the Tax Reform Act of 1986 introduced new reporting requirements for shareholders of certain foreign investment accounts.
One such investment affected by this legislation was the Passive Foreign Investment Corporation (PFIC).
As a result of the 1986 law and subsequent tax legislation, PFICs may not be an ideal investment strategy for everyone.