Updated November 2026 · VG CPA PC advisors
What a PFIC is
A foreign corporation is a PFIC if 75% or more of its income is passive or 50% or more of its assets produce passive income. Nearly all foreign mutual funds, ETFs and many foreign insurance-linked investment products meet that test.
US persons who own PFICs generally file Form 8621 for each fund each year, unless a de minimis exception applies: total PFIC holdings of $25,000 or less ($50,000 for joint filers) with no excess distributions and no elections.
How PFICs are taxed by default
Under the default excess distribution regime, gains on sale and large distributions are spread over the years you held the fund, taxed at the highest ordinary rate for each year, and charged an interest-like amount. Long-term capital gain rates never apply.
For long-held funds with large gains, the default tax can consume a large share of the gain, which is why planning before selling is important.
Elections and planning
A qualified electing fund (QEF) election taxes your share of the fund's earnings each year at ordinary and capital gain rates, but it requires an annual information statement that most foreign funds do not provide. A mark-to-market election, available for marketable funds, taxes the annual increase in value as ordinary income and avoids the interest charge going forward.
When the elections are made late, purging elections may be needed. Unfiled Forms 8621 also keep the tax return's statute of limitations open for related items, so missed filings are worth correcting.