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IRS Notice Provides Mark to Market Exception for Passive Foreign Investment Company Reporting


10/16/14

Synopsis

In Notice 2014-51 (the “Notice”), the IRS announced that it will amend the regulations under Section 1298(f) to provide an exception from the reporting requirements under those regulations for a U.S. person with respect to passive foreign investment company (PFIC) stock that is marked to market under a non-section 1296 MTM regime.
 
Issue

Generally, a U.S. person who is a shareholder of a PFIC is required to file an annual information report on Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. In addition, the regulations provide for an exception to the reporting requirements that can apply when the aggregate value of PFIC stock held by a shareholder is less than a specified threshold. However, they do not provide an exception from the information reporting requirements for shareholders of PFIC stock that is marked to market under a non-section 1296 MTM regime.
 
IRS Notice 2014-51
In this Notice, the IRS announced that it would amend the regulations under Section 1298(f) of the Code to provide guidance concerning U.S. persons holding stock of a passive foreign investment company (PFIC) that is marked to market under Section 475, or another Code provision other than Section 1296. As a result of this notice, the IRS will amend Section 1.1298-1T of the regulations to provide an exception from its reporting requirements for a U.S. person with respect to PFIC stock that is marked to market under a non-section 1296 MTM regime. However, the exception will not be available for a tax year in which the U.S. person is required to apply the rules of Section 1291 for the PFIC stock as required by Section 1.1291-1(c)(4).  Should a U.S. person hold PFIC stock that is not marked to market, the exception does not apply.
 
What Does CohnReznick Think?
This rule change is a common sense approach for taxpayers that are marking to market their PFIC investments as the IRS is not losing any potential revenue by not having the information provided annually on Form 8621.

To learn more about CohnReznick’s Financial Services Industry Practice, please visit our webpage.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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