PFIC

A PFIC, or Passive Foreign Investment Company, is a foreign corporation that mainly earns passive income or mainly holds assets that produce passive income. For U.S. expats, PFICs often include foreign mutual funds, foreign ETFs, and some foreign investment companies.

Why it matters for U.S. expats

PFIC rules can make ordinary foreign investments expensive and difficult to report on a U.S. tax return. A U.S. person who owns a PFIC may need to file Form 8621, pay tax under special PFIC rules, and choose between the default excess distribution method, a QEF election, or a mark-to-market election.

Common questions

1. How does the IRS decide whether a foreign investment is a PFIC?

A foreign corporation is a PFIC if 75% or more of its gross income is passive income, or if 50% or more of its assets produce passive income or are held to produce passive income.

2. Which investments commonly create PFIC issues for U.S. expats?

Foreign mutual funds, foreign ETFs, foreign pooled funds, and some non-U.S. investment companies commonly create PFIC issues.

3. Do foreign mutual funds and ETFs count as PFICs?

Many foreign mutual funds and ETFs are PFICs for U.S. tax purposes, even when they are ordinary, tax-efficient investments in the country where the expat lives.

4. How is a PFIC taxed for U.S. expats?

Without a valid election, PFICs are taxed under the excess distribution rules. This can push gains into prior tax years, apply higher tax rates, and add interest charges.

5. What form is used to report a PFIC?

PFICs are reported on Form 8621. A separate Form 8621 may be required for each PFIC investment.

6. Do U.S. expats need to file Form 8621 every year?

Form 8621 is required when the PFIC rules trigger annual reporting, a distribution, a sale or other disposition, a QEF election, a mark-to-market election, or another reportable PFIC event.

7. Can U.S. expats invest in foreign ETFs without PFIC issues?

Only if the ETF is not classified as a PFIC. Many non-U.S. ETFs are PFICs, so U.S. expats should check the U.S. tax treatment before buying.

8. What is a QEF election for a PFIC?

A QEF election allows a U.S. taxpayer to report their share of the PFIC’s ordinary earnings and capital gains each year. It requires an annual PFIC information statement from the fund.

9. What is a mark-to-market election for a PFIC?

A mark-to-market election lets a taxpayer include annual changes in the PFIC’s market value in income. It is only available for marketable PFIC stock.

10. Can PFIC problems be fixed after buying the investment?

Sometimes. Options may include making a current-year election, filing Form 8621 correctly, selling the investment, or using Form 8621-A for certain late elections. The best route depends on the fund, holding period, income, and prior filings.

Related forms

• Form 8621: Reporting PFICs and foreign investments
• Form 8938: Reporting foreign financial assets
• FinCEN Form 114: Report of Foreign Bank and Financial Accounts
• IRS Form 8621-A: Late PFIC elections

When to get help

Professional guidance is important when:

• You own foreign mutual funds, foreign ETFs, or foreign pooled investments.
• You are unsure whether an investment is a PFIC.
• You need to file one or more Forms 8621.
• You received a PFIC distribution or sold PFIC shares.
• You are considering a QEF or mark-to-market election.
• You previously owned PFICs but did not report them.

Bright!Tax can identify PFIC exposure, prepare Form 8621, and help you choose the most practical reporting approach. Get started with Bright!Tax.

Related Bright!Tax guides

• Form 8621: Reporting PFICs and foreign investments
• PFIC form requirements: What the IRS expects from U.S. investors abroad
• Understanding PFIC rules for U.S. expats
• Should U.S. expats invest in foreign mutual funds?
• U.S. tax and reporting for expats with foreign investments

Official sources

• IRS: About Form 8621
• IRS: Instructions for Form 8621
• IRS: About Form 8621-A

Reviewed by

Katelynn Minott, CPA & CEO

Last reviewed

June 2026