Question 1

What is a PFIC under IRS tax regulations for US expats?

Accepted Answer

Under 26 U.S.C. 1297, a Passive Foreign Investment Company (PFIC) is any foreign corporation where 75% or more of income is passive or 50% or more of assets produce passive income. Indian mutual funds, SIPs, and ETFs are classified as PFICs by the IRS.

Question 2

What IRS form is required to report Indian mutual funds?

Accepted Answer

US tax residents must file IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) for each individual foreign mutual fund held.

Question 3

What is the Mark-to-Market (MTM) election under Section 1296?

Accepted Answer

An MTM election under IRC Section 1296 allows shareholders of marketable PFIC stock to recognize annual unrealized gains or losses as ordinary income, avoiding the severe Section 1291 interest penalty tax.

IRS Code	Legal Provision	Tax Effect
26 U.S.C. § 1291	Default Excess Distribution Tax	Applies highest marginal tax rate + compounded interest penalty.
26 U.S.C. § 1296	Mark-to-Market (MTM) Election	Taxes annual market appreciation as ordinary income (no interest penalty).
IRS Form 8621	Mandatory Annual Filing	Must be attached to Form 1040 for every PFIC holding.

PFIC Form 8621 Indian Mutual Funds Tax Guide

PFIC Tax & Election Evaluator

IRS Statutory Provisions

Expat Tax Tools