PFIC (passive foreign investment company)

The Form 8621 instructions set out the two tests. Under the income test, 75% or more of the corporation's gross income for the year is passive income. Under the asset test, at least 50% of its average assets produce or are held to produce passive income. Many foreign mutual funds and ETFs meet one of these tests, and Publication 54 says a US individual owning a fund not domiciled in the United States may have a Form 8621 obligation.

PFIC income is taxed under one of three regimes. The default section 1291 rules spread excess distributions and gains over the holding period, with a separate tax and interest charge for earlier years. A qualified electing fund election taxes the shareholder each year on a share of the fund's earnings. A mark-to-market election, available only for marketable stock, taxes yearly increases in value as ordinary income.

A separate Form 8621 is generally filed for each PFIC. The instructions give a narrow exception from Part I for section 1291 funds when all PFIC stock is worth $25,000 or less at year end ($50,000 on a joint return) and there was no excess distribution or gain.

Not to be confused with

• Controlled foreign company. The Form 8621 instructions include a CFC overlap rule: a US shareholder who includes subpart F income from a controlled foreign corporation that is also a PFIC is generally not subject to the PFIC rules for the same stock during the qualified period.
• Form 8938. Form 8938 reports the value of foreign financial assets, while Form 8621 reports and figures tax on PFIC holdings.

Sources

• Instructions for Form 8621 (12/2025)Official guidance
• Publication 54 (12/2025), Tax Guide for U.S. Citizens and Resident Aliens AbroadOfficial guidance

Related

Countries covered

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Sources

2 sources

Tax year

Current rules as checked

Review

Not professionally reviewed
Sources checked November 9, 2026