The QEF or Qualified Electing Fund election under §1295 is optional method of taxation available for certain PFICs. This election most closely mirrors the US taxation of US mutual funds and allows for capital gains treatment of some of the income as long as any prior §1291 gain has been dealt with.

Who must make a QEF election?

Any U.S. shareholder of a passive foreign investment company (PFIC) can elect to treat the PFIC as a qualified electing fund (QEF) and be taxed currently on a share of the QEF's income (IRC § 1293 ).

How does a QEF election work?

Under the Qualified Electing Fund (QEF) election, a U.S. person is taxed on the pro-rata share of the mutual fund's earned income for U.S. tax purposes, split between ordinary earnings that are taxed as ordinary income and net capital gains which are taxed as capital gains at potentially preferential rates.

When can you make QEF election?

When To Make the Election

Generally, a shareholder must make the election to be treated as a QEF by the due date, including extensions, for filing the shareholder's income tax return for the first tax year to which the election will apply (the "election due date"). See Retroactive election below for exceptions.

Can a QEF election be made on an amended return?

A shareholder that is granted a retroactive QEF election must attach Form 8621 to an amended return and must file an amended return for each subsequent tax year affected by the election.

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Can you make a late QEF election?

Under the consent procedures, the IRS may allow a U.S. shareholder to make a late retroactive election to treat a passive foreign investment company (PFIC) as a qualified electing fund (QEF) where the shareholder's failure to make a timely election was based on the advice of a tax professional.

Can a partnership make a QEF election?

Since a foreign partnership cannot make PFIC elections on behalf of its partners, such as the Qualified Electing Fund (“QEF”) election, (only a U.S. shareholder can make such elections), such U.S. investors would need to file Form 8621s for the indirect ownership of the PFIC investments and make any necessary elections ...

What's QEF?

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Queen Elizabeth's Foundation for Disabled People (QEF) is a national disability charity based in Surrey, with over 85 years' experience of providing innovative services that support disabled people of all ages to increase their independence and live the life they choose.

What does QEF stand for?

"Q.E.F.," sometimes written "QEF," is an abbreviation for the Latin phrase "quod erat faciendum" ("that which was to be done"). It is a translation of the Greek words used by Euclid to indicate the end of the justification of a construction, while "Q.E.D." was the corresponding end of proof of a theorem (cf.

Who Must File 8621?

More In Forms and Instructions

A U.S. person that is a direct or indirect shareholder of a passive foreign investment company (PFIC) files Form 8621 if they: Receive certain direct or indirect distributions from a PFIC. Recognize a gain on a direct or indirect disposition of PFIC stock.

What is an Unpedigreed QEF?

If a QEF election is made effective after the first day of the first year of the U.S. shareholder's holding period, the QEF is an “unpedigreed QEF”. An “unpedigreed QEF” is subject to the PFIC default rules (i.e., tax on “excess distributions”) on a sale or liquidation of the stock.

What is a 1293 PFIC?

Section 1293(a) provides that every United States person who owns (or is treated under section 1298(a) as owning) stock of a QEF at any time during the taxable year of such fund shall include in gross income (A) as ordinary income, such shareholder's pro rata share of the ordinary earnings of such fund for such year, ...

How do I report QEF income?

The gain is reported on Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, filed with the taxpayer's federal income tax return.

How do you tell if a stock is a PFIC?

You can generally tell if a foreign corporation or foreign investment fund is considered a passive foreign investment company (PFIC) if it meets one of the following two characteristics: 75% or more of its gross income for the taxable year is passive income, or.

What is a 1291 fund?

A Section 1291 Fund is a PFIC (Passive Foreign Investment Company) and it receives different tax treatment than other foreign passive investments. As defined by the code: “(1) Distributions. If a United States person receives an excess distribution in respect of stock in a passive foreign investment company, then—

Can a foreign partnership be a PFIC?

Foreign partnerships can be considered PFICs by U.S. reporting standards depending on what type of income they generate. It is very easy not to pay attention to some PFICs that are imbedded in other investments vehicles, i.e. publicly traded partnerships.

What does QEF mean in geocaching?

PQ - Pocket Query. QEF - Quick Easy Find.

What does QED mean in texting?

Latin abbreviation for quod erat demonstrandum: "Which was to be demonstrated." Q.E.D. may appear at the conclusion of a text to signify that the author's overall argument has just been proven.

How is a PFIC taxed?

A shareholder of a PFIC is by default subject to the Sec. ... All capital gains from the sale of PFIC shares are treated as ordinary income for federal income tax purposes and thus are not taxed at preferential long-term capital gain rates (Sec. 1291(a)(1)(B)).

What is a Section 1294 election?

Section 1294. Election to extend time for payment of tax on undistributed earnings.

What is sub F income?

Subpart F income includes: insurance income, foreign base company income, international boycott factor income, illegal bribes, and income derived from a §901(j) foreign country, which are countries that sponsor terrorism or are otherwise not recognized by the US, such as Iran and North Korea.

How do I make a 475 election?

To make a valid Sec. 475 election, a taxpayer must submit a written statement affirming the election for the first tax year that the election is effective and, in the case of an election under Sec. 475(f), the trade or business for which the election is being made.

What is a Section 1295 election?

1295. Qualified Electing Fund. I.R.C. § 1295(a) General Rule — For purposes of this part, any passive foreign investment company shall be treated as a qualified electing fund with respect to the taxpayer if—

What is a PFIC purging election?

A purging election results in a deemed sale of stock in the PFIC for fair market value under section 1291(d)(2). Any gain on this deemed sale is taxed as an excess distribution (i.e. at ordinary income tax rates) and an interest charge may apply.

How do you prevent PFIC?

If the startup meets either of the PFIC tests (the asset test or income test), one method of avoiding the PFIC rules is to ensure that all U.S. shareholders own their interest through a corporation holding a 10% or more interest in the startup.