PFIC tax x Accumulating ETFs

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igordemiranda
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PFIC tax x Accumulating ETFs

Post by igordemiranda »

Hi,

As an US resident alien that plans to move abroad in a few years, I was interested in Accumulating Irish-domiciled ETFs (for reduced withholding taxes on dividends, to avoid high income tax on the distributed dividends and also to avoid the low exemption for US estate tax).

The potential problem with this approach is regarding taxes for PFICs while being a US resident.

However, while trying to better understand the taxation for PFICs, I came to the understanding that, given no election is made (mark-to-market or QEF), then there would only be tax when there are distributions (more specifically, excess distributions). And given the accumulating ETF does not distribute dividends, then there would be no tax.
In the absence of an election, the owner of a PFIC will be taxed under Section 1291 on the amount that the yearly distribution exceeds 125 per cent of the average of the last three years of distributions, and also on any capital gains realized on the sale of any fund units.
Source: https://www.mondaq.com/canada/Tax/63442 ... s-And-ETFs
The excess distribution regime permits a deferral of U.S. tax until earnings are distributed or the PFIC is sold.
Source: https://ca.rbcwealthmanagement.com/docu ... 1715cb7ee1

Is that a misunderstanding on my part? Has anyone had experience with PFIC taxation and foreign accumulating ETFs?

Any thoughts would be greatly appreciated!

Best,
Igor
avlfutbol
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Re: PFIC tax x Accumulating ETFs

Post by avlfutbol »

If anyone else has experience would like to learn as well.

I made the mistake of investing in PFIC funds my first year as an expat. In discussing with my US tax accountant, I realized the cost to employ him with PFICs+potential taxation+potential risk of errors+different volatilities in my options in home country it was not worth it. I made the decision sell the funds and to invest in other tax friendly schemes that my home country offers and buy real estate. With the excess, I accept a 0.8% foreign exchange conversion fee and send it back to the US. Probably not what you are looking for but I would say keep an open mind as an expat/US Alien investor. A lot will depend on what is available in your home country if you are paid in local currency. Yes it sucks and not ideal, but it may work out cheaper and less stress to convert the money to dollars and transfer it back if you want to invest in funds and US dollar.
TedSwippet
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Re: PFIC tax x Accumulating ETFs

Post by TedSwippet »

igordemiranda wrote: Tue Nov 17, 2020 9:38 pm Is that a misunderstanding on my part? Has anyone had experience with PFIC taxation and foreign accumulating ETFs?
Even if it works, the problem with your plan is that the deferred tax will eventually come due, and when it does, the total gain is "prorated over the entire holding period, and for previous years it is taxed at the maximum personal tax rate for that year, not the taxpayer's personal rate, plus interest at the normal rate on tax underpayments." Over a long enough period, this consumes your entire gain.

More on PFICs here:

Passive foreign investment company - Bogleheads
Passive foreign investment company - Wikipedia
Why Americans Should Never Own Shares in a Non-US Mutual Fund (PFIC)
igordemiranda wrote: Tue Nov 17, 2020 9:38 pm As an US resident alien that plans to move abroad in a few years, ...
You can travel outside the US for up to two years if you use a re-entry permit. However, if you live outside the US, you might be considered as having abandoned your green card.

https://www.uscis.gov/sites/default/fil ... s/B5en.pdf

Finally, I see from your other post that you've encountered some of the wiki and so you may already have seen this, but if not, here is a page that describes in gory detail the range of financial problems that come with being a US citizen or green card holder living outside the US:

US tax pitfalls for a US person living abroad - Bogleheads
Last edited by TedSwippet on Wed Nov 18, 2020 6:28 am, edited 2 times in total.
AlohaJoe
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Re: PFIC tax x Accumulating ETFs

Post by AlohaJoe »

igordemiranda wrote: Tue Nov 17, 2020 9:38 pm And given the accumulating ETF does not distribute dividends, then there would be no tax.
I am far from sure about this but....I think that accumulating ETFs are considered by the IRS to have "constructive receipt" of the dividend that the underlying companies paid to the fund.
You constructively receive income when it is credited to your account or made available to you. You do not need to have physical possession of it. For example, you are considered to receive interest, dividends, or other earnings on any deposit or account in a bank, savings and loan, or similar financial institution, or interest on life insurance policy dividends left to accumulate, when they are credited to your account and subject to your withdrawal.
I would triple check with an actual tax attorney before assuming the IRS is okay with you not paying taxes on accumulating funds because I'm 80% confident that isn't the case, unfortunately.
Topic Author
igordemiranda
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Re: PFIC tax x Accumulating ETFs

Post by igordemiranda »

Thank you TedSwippet and AlohaJoe for the answers!
Even if it works, the problem with your plan is that the deferred tax will eventually come due
If that is the case, then indeed it wouldn't work. But I am thinking that the tax will only be due once the ETF is sold, and if I do so when I'm a tax resident in another country (without green card, nor having had exit tax applicable when leaving the US) then PFIC taxation wouldn't apply on the gain. Am I missing something in this reasoning?
I think that accumulating ETFs are considered by the IRS to have "constructive receipt" of the dividend that the underlying companies paid to the fund.
Yes, that is one of the main risks I'm seeing. I couldn't find clarity on whether the IRS would see these as distributions despite the dividends not being physically distributed to the shareholders.

I am holding on this plan until I find a trustworthy tax planner specialized in cross-border tax policies, but I still have hopes someone may have already trailed this path and can report on the findings here.
TedSwippet
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Re: PFIC tax x Accumulating ETFs

Post by TedSwippet »

igordemiranda wrote: Wed Nov 18, 2020 6:55 am Thank you TedSwippet and AlohaJoe for the answers!
Even if it works, the problem with your plan is that the deferred tax will eventually come due
If that is the case, then indeed it wouldn't work. But I am thinking that the tax will only be due once the ETF is sold, and if I do so when I'm a tax resident in another country (without green card, nor having had exit tax applicable when leaving the US) then PFIC taxation wouldn't apply on the gain. Am I missing something in this reasoning?
Undefined. There is this:

https://www.form8621.com/codes-and-regu ... sposition/
Change of U.S. residence or citizenship.—If a shareholder of a section 1291 fund becomes a nonresident alien for U.S. tax purposes, the shareholder will be treated as having disposed of the shareholder’s stock in the section 1291 fund for purposes of section 1291 on the last day that the shareholder is a U.S. person. Termination of an election under section 6013(g) is treated as a change of residence (within the meaning of this paragraph (b)(2)) of the spouse who was a resident solely by reason of the section 6013(g) election.
This is a proposed regulation from 1992, and not yet actual regulation or law. You do not have to follow proposed regulations, but the IRS can and may use proposed regulations against you:

https://hodgen.com/the-stealth-exit-tax-pfic-style/

In general, if you plan to drop the green card, why wait? Why not simply surrender it immediately on your final flight out of the US? Keeping it while not a US resident just brings about a myriad of US tax hassles and restrictions on your financial life that you will be much better off without.

And as already noted, if you stay outside the US long enough, your permanent resident status expires more or less automatically for immigration purposes anyway. Of course, however, it does not expire automatically for tax purposes, leaving you as a fully US taxable person yet without any automatic right to live in or even enter the US.
SlowMovingInvestor
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Re: PFIC tax x Accumulating ETFs

Post by SlowMovingInvestor »

igordemiranda wrote: Wed Nov 18, 2020 6:55 am
I think that accumulating ETFs are considered by the IRS to have "constructive receipt" of the dividend that the underlying companies paid to the fund.
Yes, that is one of the main risks I'm seeing. I couldn't find clarity on whether the IRS would see these as distributions despite the dividends not being physically distributed to the shareholders.
US mutual funds and ETFs specifically pass through dividends and gains to their holders. That way they can avoid being taxed separately - only their holders get taxed. US tax laws provide 3 different ways of entering PFICs in your tax return.

1) The PFIC could follow US tax laws (hence no accumulation allowed).
OR
2) You are taxed on mark to market every year. Hence you are taxed on accumulations since they impact market value.
OR
3) You must annually include in gross income as ordinary income pro rata share of the ordinary earnings of the PFIC and as long-term capital gain pro rata share of the net capital gain of the PFIC .

I think it's pretty clear that dividends to PFICs are taxed.

Foreign domiciled ETFs are not required to pass through dividends and gains. If there were no PFIC laws, Americans could invest in 'accumulating' ETFs and defer gains until they sell, or even convert short term gains into long term gains. PFIC laws are specifically intended to prevent that.
Matej Vela
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Re: PFIC tax x Accumulating ETFs

Post by Matej Vela »

igordemiranda wrote: Tue Nov 17, 2020 9:38 pm As an US resident alien that plans to move abroad in a few years, I was interested in Accumulating Irish-domiciled ETFs (for reduced withholding taxes on dividends, to avoid high income tax on the distributed dividends and also to avoid the low exemption for US estate tax).
[...]
Well, no need to go any further because no broker will sell Irish-domiciled ETFs to a US person: viewtopic.php?p=5605594#p5605594

For a generic approach to estate taxes for people moving in and out of the US, please see: viewtopic.php?p=5594180#p5594180
Matej Vela
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Re: PFIC tax x Accumulating ETFs

Post by Matej Vela »

TedSwippet wrote: Wed Nov 18, 2020 7:46 am Undefined. There is this:

https://www.form8621.com/codes-and-regu ... sposition/
Change of U.S. residence or citizenship.—If a shareholder of a section 1291 fund becomes a nonresident alien for U.S. tax purposes, the shareholder will be treated as having disposed of the shareholder’s stock in the section 1291 fund for purposes of section 1291 on the last day that the shareholder is a U.S. person. Termination of an election under section 6013(g) is treated as a change of residence (within the meaning of this paragraph (b)(2)) of the spouse who was a resident solely by reason of the section 6013(g) election.
This is a proposed regulation from 1992, and not yet actual regulation or law. You do not have to follow proposed regulations, but the IRS can and may use proposed regulations against you:

https://hodgen.com/the-stealth-exit-tax-pfic-style/
This is completely out of date. That whole section was dropped from the 2013 proposed regulations (TD 9650) which were finalized in 2016 (TD 9806). Presumably because the IRS understood Congress to be saying "don't bother if you don't meet the 877A expatriation tax thresholds" back in 2008, which by the way affect a much lower fraction of taxpayers than Canada's departure tax.
TedSwippet
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Re: PFIC tax x Accumulating ETFs

Post by TedSwippet »

Matej Vela wrote: Wed Nov 18, 2020 10:25 am
igordemiranda wrote: Tue Nov 17, 2020 9:38 pm As an US resident alien that plans to move abroad in a few years, I was interested in Accumulating Irish-domiciled ETFs (for reduced withholding taxes on dividends, to avoid high income tax on the distributed dividends and also to avoid the low exemption for US estate tax).
[...]
Well, no need to go any further because no broker will sell Irish-domiciled ETFs to a US person: viewtopic.php?p=5605594#p5605594
It is a massive leap of logic to go from one report of one broker preventing sales of two Ireland domiciled ETFs to US residents to saying that no broker will sell any Ireland domiciled ETFs to any US taxable person. I agree though that it will perhaps be hard in practice for the topic author to effect their plan.

Note though that as a non-US citizen, they may find it much easier to open an account with a non-US broker in whatever country they move to than a US citizen would. [OT comment removed by admin LadyGeek]
TedSwippet
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Re: PFIC tax x Accumulating ETFs

Post by TedSwippet »

Matej Vela wrote: Wed Nov 18, 2020 10:51 am ... Presumably because the IRS understood Congress to be saying "don't bother if you don't meet the 877A expatriation tax thresholds" back in 2008, which by the way affect a much lower fraction of taxpayers than Canada's departure tax.
It may affect more people, but Canada's departure tax is far, far more acceptable in its application. For a start, it does not immediately and fully tax retirement accounts as if withdrawn entirely, when not withdrawn at all (and perhaps not even withdrawable), and potentially breaking multiple tax treaties. Nor does it tax (at the highest gift/estate tax in existence) the recipients of gifts back to Canadian residents or citizens made perhaps decades later by the person who departed.
international001
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Re: PFIC tax x Accumulating ETFs

Post by international001 »

Do I read right? A 1291 fund is any accumulation fund/ETF. And you can only use excess distribution method?

"Gain is determined on a share-by-share basis and is taxed as an excess distribution"

I used in the past mark-to-market (stupid old me didn't know about PFIC). IRS didn't complain.

How much is it enforced in practice?

TedSwippet wrote: Wed Nov 18, 2020 11:05 am Nor does it tax (at the highest gift/estate tax in existence) the recipients of gifts back to Canadian residents or citizens made perhaps decades later by the person who departed.
So a non-US citizen/resident gifting to US-citizen stocks in US, is liable for estate tax? I thought it worked only in the other direction (US-citizen gifting to non-US citizen/resident )
international001
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Re: PFIC tax x Accumulating ETFs

Post by international001 »

igordemiranda wrote: Wed Nov 18, 2020 6:55 am I am holding on this plan until I find a trustworthy tax planner specialized in cross-border tax policies, but I still have hopes someone may have already trailed this path and can report on the findings here.
I beg you to share whoever you find ;-)
SlowMovingInvestor
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Re: PFIC tax x Accumulating ETFs

Post by SlowMovingInvestor »

international001 wrote: Wed Nov 18, 2020 11:50 am
Do I read right? A 1291 fund is any accumulation fund/ETF. And you can only use excess distribution method?

"Gain is determined on a share-by-share basis and is taxed as an excess distribution"

I used in the past mark-to-market (stupid old me didn't know about PFIC). IRS didn't complain.

How much is it enforced in practice?
You can use mark to market. That means you mark it to market every year and report any gain as income.
TedSwippet
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Re: PFIC tax x Accumulating ETFs

Post by TedSwippet »

international001 wrote: Wed Nov 18, 2020 11:50 am So a non-US citizen/resident gifting to US-citizen stocks in US, is liable for estate tax? I thought it worked only in the other direction (US-citizen gifting to non-US citizen/resident )
If the non-US citizen and non-US resident is a US 'covered expatriate' then effectively, yes. Section 2801. Because the US cannot directly tax the non-US financial activity of someone who is not US citizen and not a US resident, the tax actually falls on the US citizen/resident gift or bequest recipient.

26 U.S. Code § 2801 - Imposition of tax | U.S. Code | US Law | LII / Legal Information Institute
(a) In general
If, during any calendar year, any United States citizen or resident receives any covered gift or bequest, there is hereby imposed a tax equal to the product of—
(1) the highest rate of tax specified in the table contained in section 2001(c) as in effect on the date of such receipt, and
(2) the value of such covered gift or bequest.

(b) Tax to be paid by recipient
The tax imposed by subsection (a) on any covered gift or bequest shall be paid by the person receiving such gift or bequest.
...
(e) Covered gift or bequest
(1) In general
For purposes of this chapter, the term “covered gift or bequest” means—
(A) any property acquired by gift directly or indirectly from an individual who, at the time of such acquisition, is a covered expatriate, and
(B) any property acquired directly or indirectly by reason of the death of an individual who, immediately before such death, was a covered expatriate.
international001
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Re: PFIC tax x Accumulating ETFs

Post by international001 »

Thx.. I had not idea that you could loose your US citizenship and still have some special 'US-treatment'
So it's not really related to where the goods reside. So in some cases, if US-citizen/resident receives a gift, the gift tax gets taxed backwards (by the recipient), at 40% !

you stop being a covered expatriate after 10 years? Or it's about something else?

https://www.law.cornell.edu/uscode/text/26/877
Every nonresident alien individual to whom this section applies and who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection (after any reduction in such tax under the last sentence of such subsection) exceeds the tax which, without regard to this section, is imposed pursuant to section 871.
TedSwippet
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Re: PFIC tax x Accumulating ETFs

Post by TedSwippet »

international001 wrote: Thu Nov 19, 2020 6:36 pm you stop being a covered expatriate after 10 years? Or it's about something else?

https://www.law.cornell.edu/uscode/text/26/877
Every nonresident alien individual to whom this section applies and who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection (after any reduction in such tax under the last sentence of such subsection) exceeds the tax which, without regard to this section, is imposed pursuant to section 871.
Once a 'covered expatriate', always a 'covered expatriate'. It is a taint for life (and beyond).

What you quoted, section 877, is the old (pre-exit tax) expatriation law. This allowed the US to tax US source income of former citizens and residents for ten years after departure. Section 877A and the 'exit tax' was added in 2008, and although it builds on section 877, it also supersedes (overrides) most of section 877, including the ten year shadow period. It is in section 877A that the term 'covered expatriate' is invented and defined. And 'covered expatriate' never expires.

26 U.S. Code § 877A - Tax responsibilities of expatriation | U.S. Code | US Law | LII / Legal Information Institute

Section 877 remains, because it applies to people who expatriated before section 877A became law. All described by the IRS here:

Expatriation Tax | Internal Revenue Service

Most of section 877 is now arguably redundant, since anyone who expatriated before June 2008 should now be well outside its ten year shadow period. However, section 877A relies on section 877 for some of its definitions, and also, people who left the US before June 2008 but didn't properly fill out tax paperwork have technically not yet started their ten year shadow period. So for practical reasons, section 877 probably won't go away any time soon.
international001
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Re: PFIC tax x Accumulating ETFs

Post by international001 »

Thanks for helping me navigate those laws. It's lots of much information to digest. But good to keep on the radar.
Matej Vela
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Re: PFIC tax x Accumulating ETFs

Post by Matej Vela »

TedSwippet wrote: Wed Nov 18, 2020 10:59 am
Matej Vela wrote: Wed Nov 18, 2020 10:25 am Well, no need to go any further because no broker will sell Irish-domiciled ETFs to a US person: viewtopic.php?p=5605594#p5605594
It is a massive leap of logic to go from one report of one broker preventing sales of two Ireland domiciled ETFs to US residents to saying that no broker will sell any Ireland domiciled ETFs to any US taxable person.
No, not just one report or one broker or two ETFs; the post links to: Also, "any US taxable person" is a misreading. The documents above are referring to "US person" as defined under Regulation S of the Securities Act of 1933, which is primarily determined by physical residence and orthogonal to tax status. For example, a student may be a US person in the Regulation S sense despite filing 1040NR as a nonresident. Conversely, a US citizen not resident in the US may not be a US person in the Regulation S sense, though brokers in practice err on the side of caution.
TedSwippet wrote: Wed Nov 18, 2020 10:59 am I agree though that it will perhaps be hard in practice for the topic author to effect their plan.

Note though that as a non-US citizen, they may find it much easier to open an account with a non-US broker in whatever country they move to than a US citizen would. [...]
Well, that escalated quickly... I believe the remainder is out of scope for this forum, and will let the moderators chime in before replying.

[Edited to move Amundi snippet to the other thread: viewtopic.php?p=5612876]
typical.investor
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Re: PFIC tax x Accumulating ETFs

Post by typical.investor »

Matej Vela wrote: Sun Nov 22, 2020 12:47 am
TedSwippet wrote: Wed Nov 18, 2020 10:59 am
Matej Vela wrote: Wed Nov 18, 2020 10:25 am Well, no need to go any further because no broker will sell Irish-domiciled ETFs to a US person: viewtopic.php?p=5605594#p5605594
It is a massive leap of logic to go from one report of one broker preventing sales of two Ireland domiciled ETFs to US residents to saying that no broker will sell any Ireland domiciled ETFs to any US taxable person.
No, not just one report or one broker or two ETFs; the post links to: Also, "any US taxable person" is a misreading. The documents above are referring to "US person" as defined under Regulation S of the Securities Act of 1933, which is primarily determined by physical residence and orthogonal to tax status. For example, a student may be a US person in the Regulation S sense despite filing 1040NR as a nonresident. Conversely, a US citizen not resident in the US may not be a US person in the Regulation S sense, though brokers in practice err on the side of caution.
TedSwippet wrote: Wed Nov 18, 2020 10:59 am I agree though that it will perhaps be hard in practice for the topic author to effect their plan.

Note though that as a non-US citizen, they may find it much easier to open an account with a non-US broker in whatever country they move to than a US citizen would. [...]
Well, that escalated quickly... I believe the remainder is out of scope for this forum, and will let the moderators chime in before replying.

[Edited to move Amundi snippet to the other thread: viewtopic.php?p=5612876]
I don’t agree with the interpretation that US citizens outside the US are not considered a US Person.
In C&DI 276.01, the SEC staff clarified that a person that has permanent resident status in the U.S. (a so-called Green Card holder) is presumed to be a U.S. resident for purposes of Regulation S.
If a green card holder is presumed to be a U.S. resident for purposes of Regulation S, then certainly US citizens are.

See https://www.akingump.com/en/experience/ ... ion-s.html
Matej Vela
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Re: PFIC tax x Accumulating ETFs

Post by Matej Vela »

typical.investor wrote: Sun Nov 22, 2020 1:59 am I don’t agree with the interpretation that US citizens outside the US are not considered a US Person.
In C&DI 276.01, the SEC staff clarified that a person that has permanent resident status in the U.S. (a so-called Green Card holder) is presumed to be a U.S. resident for purposes of Regulation S.
If a green card holder is presumed to be a U.S. resident for purposes of Regulation S, then certainly US citizens are.

See https://www.akingump.com/en/experience/ ... ion-s.html
Not necessarily. US Green Card holders are expected to return to the US in less than a year, and need to request a re-entry permit for more (up to 2 years?). US citizens aren't bound by the same sort of implicit expectation. Of course, I did say "may" and am not a lawyer, I'm just saying there's an argument to be made.
typical.investor
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Re: PFIC tax x Accumulating ETFs

Post by typical.investor »

Matej Vela wrote: Sun Nov 22, 2020 2:29 am
typical.investor wrote: Sun Nov 22, 2020 1:59 am I don’t agree with the interpretation that US citizens outside the US are not considered a US Person.
In C&DI 276.01, the SEC staff clarified that a person that has permanent resident status in the U.S. (a so-called Green Card holder) is presumed to be a U.S. resident for purposes of Regulation S.
If a green card holder is presumed to be a U.S. resident for purposes of Regulation S, then certainly US citizens are.

See https://www.akingump.com/en/experience/ ... ion-s.html
Not necessarily. US Green Card holders are expected to return to the US in less than a year, and need to request a re-entry permit for more (up to 2 years?). US citizens aren't bound by the same sort of implicit expectation. Of course, I did say "may" and am not a lawyer, I'm just saying there's an argument to be made.
Yeah, I don’t agree with that at all, and wouldn’t rely on it.

A US citizen has permanent resident status period. If a green card holder is included in regulation S due to their permanent residence status, surely an American citizen is as well.

And actually, a Green Card Holder will be subject to US taxation irrespective of whether or not they can enter the US. Failing to return to the US does not change anything (except your ability to physically renter). So yes, you might not be able to get in, but you are still liable for US taxation until your loss of residency is official.

Per the IRS,
You continue to have U.S. resident status, under this test, unless:

You voluntarily renounce and abandon this status in writing to the USCIS,
Your immigrant status is administratively terminated by the USCIS, or
Your immigrant status is judicially terminated by a U.S. federal court.
Similarly, I believe a US citizen would be considered a US person until they have renounced citizenship.

See https://www.irs.gov/individuals/interna ... -card-test
Matej Vela
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Re: PFIC tax x Accumulating ETFs

Post by Matej Vela »

typical.investor wrote: Sun Nov 22, 2020 2:48 am
Matej Vela wrote: Sun Nov 22, 2020 2:29 am Not necessarily. US Green Card holders are expected to return to the US in less than a year, and need to request a re-entry permit for more (up to 2 years?). US citizens aren't bound by the same sort of implicit expectation. Of course, I did say "may" and am not a lawyer, I'm just saying there's an argument to be made.
Yeah, I don’t agree with that at all, and wouldn’t rely on it.

A US citizen has permanent resident status period. If a green card holder is included in regulation S due to their permanent residence status, surely an American citizen is as well.

And actually, a Green Card Holder will be subject to US taxation irrespective of whether or not they can enter the US. Failing to return to the US does not change anything (except your ability to physically renter). So yes, you might not be able to get in, but you are still liable for US taxation until your loss of residency is official.

Per the IRS, [...]

Similarly, I believe a US citizen would be considered a US person until they have renounced citizenship.

See https://www.irs.gov/individuals/interna ... -card-test
Completely agree on the taxation of a Green Card holder irrespective of ability to enter the US, but again, that's orthogonal. I see these dimensions as related but distinct:
  • US immigration status: citizen vs. green card holder vs. immigrant visa holder vs. non-immigrant visa holder
  • US income tax residence: 1040 vs. 1040NR
  • US personhood under Regulation S: permanently living in the US vs. not
I believe 17 CFR § 240.15a-6(a)(4)(v) speaks to this case:
(a) A foreign broker or dealer shall be exempt from the registration requirements of sections 15(a)(1) or 15B(a)(1) of the Act to the extent that the foreign broker or dealer:
[...]
(4) Effects transactions in securities with or for, or induces or attempts to induce the purchase or sale of any security by:
[...]
(v) U.S. citizens resident outside the United States, provided that the transactions occur outside the United States, and that the foreign broker or dealer does not direct its selling efforts toward identifiable groups of U.S. citizens resident abroad.
Edited to add: also 17 CFR § 230.902(h):
(h) Offshore transaction.
(1) An offer or sale of securities is made in an “offshore transaction” if:
(i) The offer is not made to a person in the United States; and
(ii) Either:
(A) At the time the buy order is originated, the buyer is outside the United States, or the seller and any person acting on its behalf reasonably believe that the buyer is outside the United States; or
[...]
(2) Notwithstanding paragraph (h)(1) of this section, offers and sales of securities specifically targeted at identifiable groups of U.S. citizens abroad, such as members of the U.S. armed forces serving overseas, shall not be deemed to be made in “offshore transactions.”
It would be redundant for 240.15a-6(a)(4)(v) or 230.902(h)(2) to exclude transactions and offers targeted at "identifiable groups of U.S. citizens [resident] abroad" if all US citizens were included in the definition of a U.S. person.
scotsman
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Re: PFIC tax x Accumulating ETFs

Post by scotsman »

Well, I can’t comment on the details here, but as a new-comer to the US I unwittingly found myself holding a few PFICS including vanilla Irish ETF’s a few years ago. I can’t imagine any scenario where somebody would keep them. The complexity of reporting is astounding, the rules extraordinarily tricky, the record keeping absurd, and the taxes atrocious. Having sold them all I had to re-do three years of tax returns, and coupled with the current years I ended up with a total of 96 Form 8621’s to file across the years. I could not afford the accounting fees ($500 a form I was quoted) so ended up doing them all myself at a great personal cost.

Never again... these things are the worst thing that the IRS ever created.
international001
Posts: 1643
Joined: Thu Feb 15, 2018 7:31 pm

Re: PFIC tax x Accumulating ETFs

Post by international001 »

scotsman wrote: Sun Nov 22, 2020 8:48 am Well, I can’t comment on the details here, but as a new-comer to the US I unwittingly found myself holding a few PFICS including vanilla Irish ETF’s a few years ago. I can’t imagine any scenario where somebody would keep them. The complexity of reporting is astounding, the rules extraordinarily tricky, the record keeping absurd, and the taxes atrocious. Having sold them all I had to re-do three years of tax returns, and coupled with the current years I ended up with a total of 96 Form 8621’s to file across the years. I could not afford the accounting fees ($500 a form I was quoted) so ended up doing them all myself at a great personal cost.

Never again... these things are the worst thing that the IRS ever created.
Horror story.

By why, if I may ask 96 8621 fornms? Did you have 96/3 Irish funds? Did you use mark to market?
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