Instructions for Form 8621-A (12/2005)

General Instructions

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Table of Contents

Purpose of Form

A U.S. person that is a direct or indirect shareholder of a former Passive Foreign Investment Company (PFIC) or a Section 1297(e) PFIC is treated for tax purposes as holding stock in a PFIC and therefore continues to be subject to taxation under section 1291 unless the shareholder makes a purging election under section 1298(b)(1).

A purging election under section 1298(b)(1) is:

A deemed dividend election or a deemed sale election made with respect to a former PFIC under the rules of Regulations section 1.1298-3(c) or
A deemed dividend election or a deemed sale election made with respect to a Section 1297(e) PFIC under the rules of Temporary Regulations section 1.1297-3T(e).

A timely filed purging election is made on Form 8621. This Form 8621-A is used only to make a late purging election under section 1298(b)(1).

A late purging election is a purging election under section 1298(b)(1) that is made:

In the case of a shareholder of a former PFIC, after 3 years from the due date, as extended, of the tax return for the taxable year that includes the termination date, or
In the case of a shareholder of a section 1297(e) PFIC, after 3 years from the due date, as extended, of the tax return for the taxable year that includes the CFC qualification date.

See Temporary Regulations sections 1.1298-3T(e) or 1.1297-3T(e) for more details.

Generally, the amount due with respect to a late purging election is computed in the same manner as if the purging election had been timely filed. However, the taxpayer must also pay interest on the amount due determined for the period beginning on the due date (without extensions) for the taxpayer's income tax return for the election year and ending on the date the late purging election is filed with the IRS. See the instructions for Part I on page 2 for details.

How to Complete Form 8621-A

The shareholder makes the applicable election in Part I of the form. The shareholder then provides basic information about the election in Part II or Part III of the form and computes the tax and interest due in Part IV of the form.

If the election year (defined below) is a closed taxable year, the taxpayer must enter into a closing agreement (page 3 of the form) to agree to eliminate any prejudice to the interests of the U.S. government as a consequence of the taxpayer's inability to file an amended return for the election year.

The closing agreement must be filed in duplicate and both copies must contain original signatures. See Closing Agreement on page 4 for additional information.

A separate Form 8621-A must be filed for each PFIC for which a late purging election is being made. See Chain of ownership below for specific filing requirements.

Chain of ownership. If the shareholder owns one PFIC and through that PFIC owns one or more other PFICs, the shareholder must file a separate Form 8621-A for each Section 1297(e) PFIC or former PFIC in the chain for which a late purging election is made. File these Forms 8621-A together.

Where to File

File Form 8621-A with:

Internal Revenue Service

DP 8621-A

Ogden, UT 84201

Filing Checksheet

Be sure to:

Check the applicable box in Part I of the form that corresponds to the election you are making.
Complete the applicable lines in Part II or III of the form (along with any required attachments requested on any of those lines) as requested at the end of the election description in Part I of the form.
Complete Part IV of the form along with any required attachments requested on any of the lines in Part IV.
Sign and date the form in the spaces provided at the bottom of page 2 of the form.
If the election year is a closed taxable year, file the closing agreement on page 3 of the form in duplicate. Both copies must contain original signatures. See Closing Agreement on page 4 for details.
Complete the balance sheet on page 4 of the form, if applicable (that is, if required by line 4 or line 8 of the form).
Keep a copy of the form for your records.
Make your check or money order payable to the “United States Treasury.” Include your identifying number and “Form 8621-A” on your payment.

If Form 8621-A does not include full payment of the amount shown on line 21 of the form, the form will not be processed.

Definitions

Controlled Foreign Corporation (CFC)

See section 957(a) for definition.

CFC Overlap Rules

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

Qualified portion of holding period. For purposes of section 1297(e), the qualified portion of the shareholder's holding period in a corporation is the portion of the shareholder's holding period:

That is after December 31, 1997, and
During which the shareholder is a U.S. shareholder under section 951(b) and the corporation is a CFC.

CFC Qualification Date. The CFC qualification date is the first day on which the qualified portion of the shareholder's holding period in the Section 1297(e) PFIC begins, as determined under section 1297(e).

Section 1297(e) PFIC. A foreign corporation is a Section 1297(e) PFIC with respect to a shareholder if:

The foreign corporation qualifies as a PFIC under section 1297(a) on the first day on which the qualified portion of the shareholder's holding period in the foreign corporation begins, as determined under section 1297(e)(2) (CFC overlap rule) and
The stock of the foreign corporation held by the shareholder is treated as stock of a PFIC, under section 1298(b)(1), because, at any time during the shareholder's holding period of the stock, other than the qualified portion, the corporation was a PFIC that was not a QEF.

Election Year

In the case of a former PFIC, the election year is the taxable year of the electing shareholder that includes the termination date.
In the case of a Section 1297(e) PFIC, the election year is the taxable year of the electing shareholder that includes the CFC qualification date.

Former PFIC

A foreign corporation is a former PFIC with respect to the shareholder if the corporation satisfies neither the income test nor the asset test (described under the definition of PFIC below), but whose stock, held by that shareholder, is treated as stock of a PFIC, under section 1297(b)(1), because at any time during the shareholder's holding period of the stock the corporation was a PFIC (under the income or asset test of section 1297(a) described below) that was not a qualified electing fund (QEF).

Indirect shareholder

Generally, a U.S. person is an indirect shareholder of a Section 1297(e) PFIC or a former PFIC if it is:

A direct or indirect owner of a pass-through entity that is a direct or indirect shareholder of a Section 1297(e) PFIC or a former PFIC,
A shareholder of a PFIC that is a shareholder of a Section 1297(e) PFIC, or a former PFIC, or
A 50%-or-more shareholder of a foreign corporation that is not a PFIC and that directly or indirectly owns stock of a Section 1297(e) PFIC or a former PFIC.

Passive Foreign Investment Company (PFIC)

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

Income test. 75% or more of the corporation's gross income for its taxable year is passive income (as defined in section 1297(b)).
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 that produce passive income or that 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:

The corporation is not publicly traded for the taxable year and
The corporation (a) is 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.

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 1298) to treat the PFIC as a QEF. See the instructions for Form 8621 for more information.

Shareholder

A shareholder is a U.S. person that is a direct or indirect shareholder of the foreign corporation. See Indirect shareholder above for definition.

Termination date

The termination date is the last day of the last taxable year of the foreign corporation during which it qualified as a PFIC under section 1297(a).