Paperwork Reduction Act Notice.

We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential as required by section 6103.

The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is:

Recordkeeping	13 hr., 38 min.
Learning about the law or the form	6 hr., 27 min.
Preparing and sending the form to the IRS	6 hr., 58 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler, we would be happy to hear from you. You can write to the Tax Forms Committee, Western Area Distribution Center, Rancho Cordova, CA 95743-0001. Do not send the tax form to this office. Instead, see When and Where To File on page 1.

Changes To Note

Final regulations under sections 1295 and 1296 have been issued that provide guidance to passive foreign investment company (PFIC) shareholders.

• A shareholder is no longer required to file a duplicate copy of Form 8621 with the Internal Revenue Service Center, Philaldelphia, PA, when the shareholder makes the section 1295 election to be treated as a QEF or reports its annual pro rata share of the ordinary earnings and net capital gain of the QEF. See When and Where To File below and the instructions for how to make Election A on page 3. For effective dates, see Regulations section 1.1295-1(k).
• A shareholder is not required to include in income its pro rata share of ordinary earnings and net capital gain from a QEF for a tax year in which the foreign corporation is not treated as a PFIC. However, the section 1295 election is not terminated. If the foreign corporation is treated as a PFIC in any subsequent tax year, the shareholder's original section 1295 election is still in effect and the annual income inclusion and reporting requirements will apply. For more information, see Regulations section 1.1295-1(c)(2). For effective dates, see Regulations section 1.1295-1(k).
• The definition of marketable stock for purposes of making the mark-to-market election under section 1296 has been clarified. See Regulations section 1.1296-1(e) and Mark-to-Market Election for PFIC Stock on page 2.

General Instructions

Who Must File

Generally, a U.S. person must file Form 8621 for each tax year in which that U.S. person is a direct or indirect shareholder of a PFIC. A separate Form 8621 must be filed for each PFIC in which stock is held. See Chain of ownership below for specific filing requirements.

Indirect shareholder.   Generally, a U.S. person is an indirect shareholder of a PFIC if it is:

1. A direct or indirect owner of a pass-through entity that is a direct or indirect shareholder of a PFIC;
2. A shareholder of a PFIC that is a shareholder of another PFIC; or
3. A 50%-or-more shareholder of a foreign corporation that is not a PFIC and that directly or indirectly owns stock of a PFIC.

Interest holder of pass-through entities.   The following interest holders must file Form 8621:

1. A U.S. person that is an interest holder of a foreign pass-through entity that is a direct or indirect shareholder of a PFIC;
2. A U.S. person that is considered (under sections 671 through 679) the shareholder of PFIC stock held in trust; and
3. A U.S. partnership, S corporation, trust (other than a trust that is subject to sections 671 through 679 for the PFIC stock), or estate that is a direct or indirect shareholder of a PFIC.

Note:   U.S. persons that are interest holders of pass-through entities described in 3 above must file Form 8621 if the pass-through entity fails to file such form or the U.S. person is required to recognize any income under either section 1291 or section 1293.

Chain of ownership.   If the shareholder owns one PFIC and through that PFIC owns one or more other PFICs, the shareholder must either:

1. File a Form 8621 for each PFIC in the chain or
2. Complete Form 8621 for the first PFIC and, in an attachment, provide the information required on Form 8621 for each of the other PFICs in the chain.

When and Where To File

Attach Form 8621 to the shareholder's tax return and file both by the due date, including extensions, of the return.

If you are not required to file an income tax return or other return for the tax year, file Form 8621 directly with the Internal Revenue Service Center, P.O. Box 21086, Philadelphia, PA 19114.

Definitions and Special Rules

Passive Foreign Investment Company (PFIC)

A foreign corporation is a PFIC if it meets either the income or asset test described below.

1. Income test. 75% or more of the corporation's gross income for its taxable year is passive income (as defined in section 1297(b)).
2. Asset test. At least 50% of the average percentage of assets (determined under section 1297(f)) held by the foreign corporation during the taxable year are assets which produce passive income or are held for the production of passive income.

Basis for measuring assets.   When determining PFIC status using the asset test, a foreign corporation may use adjusted basis if:

1. The corporation is nonpublicly traded and
2. The corporation is (a) a CFC or (b) makes an election to use adjusted basis.

Publicly traded corporations must use fair market value when determining PFIC status using the asset test.

Look-thru rule.   When determining if a foreign corporation that owns at least 25% (by value) of another corporation is a PFIC, the foreign corporation is treated as if it held a proportionate share of the assets and received directly its proportionate share of the income of the 25%-or-more owned corporation.

CFC overlap rule.   A 10% U.S. shareholder (defined in section 951(b)) that includes in income its pro rata share of subpart F income for stock of a CFC that is also a PFIC, generally will not be subject to the PFIC provisions for the same stock. This exception does not apply to option holders. For more information, see section 1297(e).

Note:   The attribution rules of section 1298(a)(2)(B) will continue to apply even if the foreign corporation is not a PFIC under the CFC overlap rule.

Qualified Electing Fund (QEF)

A PFIC is a QEF if the U.S. person who is a direct or indirect shareholder of the PFIC elects (under section 1295) to treat the PFIC as a QEF. See the instructions for Election A on page 2 for information on making this election.

Tax Consequences for Shareholders of a QEF

• A shareholder of a QEF must annually include in gross income its pro rata share of the ordinary earnings and net capital gain of the QEF.
• The shareholder may elect to extend the time for payment of tax on its share of the undistributed earnings of the QEF (Election D) until the QEF election is terminated.
• The shareholder may make a deemed sale election (Election B) or a deemed dividend election (Election C) to purge the section 1291 fund years from its holding period.

Note:   A shareholder that receives a distribution from an unpedigreed QEF (defined in Regulations section 1.1291-9(j)(iii)) may also be subject to the rules applicable to a shareholder of a section 1291 fund (see below).

Basis adjustments.   A shareholder's basis in the stock of a QEF is increased by the earnings included in gross income and decreased by a distribution from the QEF to the extent of previously taxed amounts.

Section 1291 Fund

A PFIC is a section 1291 fund if:

1. The shareholder did not elect to treat the PFIC as a QEF or
2. The shareholder made the QEF election for a tax year after the foreign corporation's first tax year as a PFIC during the shareholder's holding period and did not make the deemed sale election or the deemed dividend election.

Tax Consequences for Shareholders of a Section 1291 Fund

Shareholders of a section 1291 fund are subject to special rules when they receive an excess distribution (defined below) from, or dispose of the stock of, a section 1291 fund. A distribution may be partly or wholly an excess distribution. The entire amount of gain from the disposition of a section 1291 fund is treated as an excess distribution.

Excess distributions.   An excess distribution is the part of the distribution received from a section 1291 fund in the current tax year that is greater than 125% of the average distributions received in respect to such stock by the shareholder during the 3 preceding tax years (or, if shorter, the portion of the shareholder's holding period before the current tax year). No part of a distribution received or deemed received during the first tax year of the shareholder's holding period of the stock will be treated as an excess distribution.

The excess distribution is determined on a per share basis and is allocated to each day in the shareholder's holding period of the stock. See section 1291(b)(3) for adjustments that are made when determining if a distribution is an excess distribution.

Portions of an excess distribution are treated differently. The portions allocated to the days in the current tax year and the shareholder's tax years in its holding period before the foreign corporation qualified as a PFIC (pre-PFIC years) are taxed as ordinary income. The portions allocated to the days in the shareholder's tax years (other than the current tax year) in its holding period when the foreign corporation was a PFIC are not included in income, but are subject to the deferred tax amount, as defined in section 1291(c).

See the instructions for Part IV on page 6.

Exempt organizations.   If a shareholder of a PFIC is a tax exempt organization, the tax and interest rules of section 1291 will apply only if the dividend from the PFIC will be taxable to the shareholder under subchapter F.

Mark-to-Market Election for PFIC Stock

A U.S. shareholder of a PFIC may elect to mark the PFIC stock to market if the stock is marketable stock.

Marketable stock.   The following PFIC stock is marketable.

• Stock that is regularly traded on:
  1. A national securities exchange that is registered with the Securities and Exchange Commission (SEC),
  2. The national market system established under section 11A of the Securities and Exchange Act of 1934, or
  3. A foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located and has the characteristics described in Regulations section 1.1296(e)-1(c)(1)(ii).
• Stock in a foreign corporation if the foreign corporation:
  1. Offers for sale, or has outstanding, any stock of which it is the issuer and which is redeemable at its net asset value and
  2. Satisfies the conditions described in Regulations section 1.1296(e)-1(d).
• Any option on marketable stock described above.

For additional information, including special rules for RICs that own PFIC stock, see Regulations section 1.1296(e)-1.

Tax Consequences

If the PFIC shareholder elects to mark the stock to market, the shareholder either:

1. Includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock or
2. Is allowed a deduction for the excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the taxable year.

See section 1296(d) for limitations.

Basis adjustment.   The shareholder's adjusted basis in the PFIC stock is increased by the amount included in income and decreased by any deductions allowed. If the stock is owned indirectly through foreign entities, the adjustments to the stock's basis shall apply to the stock in the hands of the person actually holding the stock, but only for purposes of applying the PFIC rules to the tax treatment of the U.S. person.

Additional Information Required

A shareholder of a PFIC must attach certain information to Form 8621. This information includes:

• The number of shares in each class of stock owned by the shareholder at the beginning of its tax year;
• Any changes in the number of shares in each class of stock during its tax year and the dates of such changes; and
• The number of shares in each class of stock at the end of its tax year.

Specific Instructions

Important:   All line references to Form 1120 and Form 1040 are to the 2000 forms. Other entities should use the comparable line on their income tax return.

Address and Identifying Number

Address.   Include the suite, room, or other unit number after the street address. If the Post Office does not deliver mail to the street address and the shareholder has a P.O. box, enter the box number instead.

Identifying number.   Individuals should enter a social security number or a taxpayer identification number issued by the IRS. All other entities, enter employer identification number.

Part I - Elections

A - Election To Treat the PFIC as a QEF (Section 1295 Election)

Who May Make the Election

Note:   A separate election must be made for each PFIC that the shareholder wants to treat as a QEF.

Generally, a U.S. person that owns stock in a PFIC, directly or indirectly, may make Election A to treat the PFIC as a QEF.

Exception.   A tax exempt organization that is not taxable under section 1291 may not make the election. In addition, a tax exempt organization that is a member of a domestic pass-through entity is not subject to a QEF election made by the pass-through entity.

Chain of ownership.   In a chain of ownership, only the first U.S. person that is a direct or indirect shareholder of the PFIC may make the election.

Pass-through entities.   A QEF election made by a domestic partnership, S corporation, or estate is made in the pass-through entity's capacity as a shareholder of a PFIC. The entity will include the QEF earnings as income for the year in which the PFIC's taxable year ends. The interest holder in the pass-through entity takes the income into account under the rules applicable to inclusions of income from a pass-through entity.

Affiliated groups.   The common parent of an affiliated group of corporations that joins in filing a consolidated income tax return makes the QEF election for all members of the affiliated group that are shareholders in the PFIC. An election by a common parent is effective for all members of the group that own stock in the PFIC at the time the election is made or any time thereafter.

For more information on who may make the election, see Regulations section 1.1295-1(d).

When To Make the Election

Generally, a shareholder must make the election to be treated as a QEF by the due date, including extensions, for filing the shareholder's income tax return for the first tax year to which the election will apply (the election due date). See Retroactive election below for exceptions. The foreign corporation will be treated as a QEF with respect to the shareholder for the tax year in which the election is made and for each subsequent tax year of the foreign corporation ending with or within a taxable year of the shareholder for which the election is effective. For more information on making a retroactive election, see Regulations section 1.1295-3.

Retroactive election.   A shareholder may make a QEF election for a taxable year after the election due date (a retroactive election), only if:

• The shareholder has preserved its right to make a retroactive election under the protective statement regime (described below) or
• The shareholder obtains the permission of the IRS to make a retroactive election under the consent regime (described below).

Protective regime.   Under the protective statement regime, a shareholder may reserve the ability to make a retroactive election if the shareholder:

1. Reasonably believed, as of the due date for making the QEF election, that the foreign corporation was not a PFIC for its taxable year that ended during that year (retroactive election year);
2. Filed a Protective Statement (see below) with respect to the foreign corporation, applicable to the retroactive election year, in which the shareholder describes the basis for its reasonable belief;
3. Extended, in the protective statement, the periods of limitations on the assessment of taxes under the PFIC rules for all taxable years to which the protective statement applies; and
4. Complied with the other terms and conditions of the protective statements.

The Protective Statement must be attached to the shareholder's tax return for the shareholder's first taxable year to which the statement will apply. For more information, see Regulations section 1.1295-3(c).

Consent regime.   Under the consent regime, a shareholder that has not satisfied the requirements of the protective regime may request that the IRS permit a retroactive election. The consent regime applies only if:

1. The shareholder reasonably relied on tax advice of a competent and qualified tax professional;
2. The interest of the U.S. government will not be prejudiced if the consent is granted; and
3. The shareholder requests consent before the PFIC status issue is raised on audit.

See Regulations section 1.1295-3(f)(4) for the procedures for requesting a ruling on making a retroactive election under the consent regime.

Special Rules

• The election can only be revoked with the consent of the IRS.
• The election is not terminated if the foreign corporation ceases to be a PFIC.
• For any tax year in which the foreign corporation is not a PFIC under section 1297(a) or is not treated as a PFIC under section 1298(b)(1), the corporation will not be treated as a QEF and the reporting rules of section 1295 will not apply. See the instructions for Part II.
• Complete termination or transfer of a shareholder's direct or indirect interest will not terminate the section 1295 election with respect to the foreign corporation. For more information, see Regulations section 1.1295-1(c)(2).

How To Make the Election

• For the tax year in which the section 1295 election is made, the shareholder must do the following.
  1. Check box A in Part I of Form 8621.
  2. Complete the applicable lines of Part II. Include the information provided in the PFIC Annual Information Statement, the Annual Intermediary Statement, or a combined statement (see below) received from the PFIC.
  3. Attach Form 8621 to a timely filed tax return.
• For each subsequent tax year in which the election applies and the corporation is treated as a QEF, the shareholder must:
  1. Complete the applicable lines of Part II and
  2. Attach Form 8621 to a timely filed tax return.

Annual Election Requirements of the PFIC or Intermediary

PFIC Annual Information Statement.   For each year of the PFIC ending in a taxable year of a shareholder to which the section 1295 election applies, the PFIC must provide the shareholders with a PFIC Annual Information Statement. The statement must contain certain information, including:

1. The shareholder's pro rata share of the PFIC's ordinary earnings and net capital gain for that taxable year or
2. Sufficient information to enable the shareholder to calculate its pro rata share of the PFIC's ordinary earnings and net capital gain.

See Regulations section 1.1295-1(g)(1).

Annual Intermediary Statement.   If the shareholder holds stock in a PFIC through an intermediary, an Annual Intermediary Statement may be issued in lieu of the PFIC Annual Information Statement. For the definition of an intermediary, see Regulations section 1.1295-1(j). For details on the information that should be included in the Annual Intermediary Statement, see Regulations section 1.1295-1(g)(3).

Combined statements.   A PFIC that owns directly or indirectly any shares of stock in one or more PFICs may provide its shareholders with a PFIC Annual Information Statement in which it combines its own required information and representations with the information and representations of any lower-tier PFIC. Similarly, an intermediary through which a shareholder indirectly holds stock in more than one PFIC may provide the shareholder a combined Annual Intermediary Statement. For more information, see Regulations section 1.1295-1(g)(4).

Documentation.   For all taxable years subject to the section 1295 election, the shareholder must keep copies of all Forms 8621, attachments, and all PFIC Annual Information Statements or Annual Intermediary Statements. Failure to produce these documents at the request of the IRS will result in invalidation or termination of the section 1295 election. In rare and unusual circumstances, the IRS will consider requests for alternative documentation to verify the ordinary earnings and net capital gain of the PFIC.

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