Passive Foreign Investment Company (PFIC) Reporting: Form 8621

US persons who own shares in a Passive Foreign Investment Company must file Form 8621 with their annual tax return — and the form is required even in years when no distributions were received and no shares were sold. Form 8621 reports information about each PFIC you own and how you elected to be taxed: under the default "excess distribution" method (the harshest), the QEF (Qualified Electing Fund) election, or the Mark-to-Market election. The QEF election requires the PFIC to provide an annual report of its ordinary earnings and net capital gains — most foreign funds won't provide this, making the QEF election impractical in many cases. The Mark-to-Market election taxes unrealized gains each year at ordinary income rates, which avoids the punitive interest charges of the default method. Penalties for not filing Form 8621 are not clearly specified in the statute, but the failure to file leaves the statute of limitations open on the entire tax return, which is itself a significant risk.