PFIC Testing—Significant New Guidance but Some Unanswered Questions Remain

On December 4, 2020, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) published final and proposed regulations providing guidance on the passive foreign investment company (PFIC) rules under Internal Revenue Code sections 1291, 1297 and 1298. The impetus of the new regulations was the 2017 tax act’s modification of Code Sec. 1297(f) to provide specific rules to limit the application of the active insurance exception to PFIC status. 

Accordingly, the new regulations provide detailed guidance on the application of PFIC to insurance companies, as well as related questions on the application of the active banking exceptions under Code Secs. 1297 and 954(h) to potential PFICs. This specialized guidance on insurance and banking is likely to be of interest to taxpayers in those industry sectors. 

However, this article focuses on the other areas covered by the regulations that are relevant to U.S. shareholders in foreign corporations more broadly, and the questions answered and unanswered by the final and proposed regulations.

To read the full article, click here.

Originally published in the January – February 2021 issue of the International Tax Journal.