Form 8621 - Mark to Market election during first year of ownership

Hi All,

I'm looking to fill out a Form 8621 for some marketable shares in some UK funds held in an children's ISA. 2016 is the first year that the funds were owned in, so I'm trying to take advantage and do the Mark to Market election. The value is low enough that I don't really have to report (under $25000) but I'd like to do this so that when my kids get control of the money when they're 18, they won't be responsible for a massive PFIC tax bill. This seems like a sensible strategy as the chances of them having an actual U.S. tax bill, even if working part time when they are teenagers, seems unlikely.

Is my understanding correct that there is no need to "purge" the fund shares of their "PFIC taint"? This is because this is the first year of ownership and I'm making the MTM election in that year (there can be no excess distributions in the first year of ownership, unless of course you dispose of them for a gain in that year).

If my understanding is correct, then on form 8621 under section I, question 5, I'd select (c) - MTM and enter $0 for excess distribution, then move along to Section IV recording the gains I made then adding them to their regular income for tax purposes.

I've read the instructions many times, but I'm just looking for some confirmation!

Does this sound right, I sure hope so!

Any help, much appreciated!

Sam

Yes, you are right on track.

Thanks for confirming that. Like most of us on here, I'm very experience at filing out long and complicated forms, but filling out anything PFIC related really takes the cake as far as I'm concerned!

I am not sure why a US person child should ever own a PFIC at all. There may be tax liabilities because of stock market gains or currency movements, followed by decades of market falls so no real tax liability at all. PFICs are a very unconventional choice for a US person child. A Junior ISA has a wide selection of more suitable investment options available.

Don't overlook that that the PFIC account gets reported on both their own and your FBARs, because of your signature authority.

I am not sure why a US person child should ever own a PFIC at all. There may be tax liabilities because of stock market gains or currency movements, followed by decades of market falls so no real tax liability at all. PFICs are a very unconventional choice for a US person child. A Junior ISA has a wide selection of more suitable investment options available.

Don't overlook that that the PFIC account gets reported on both their own and your FBARs, because of your signature authority.

I might be using PFIC incorrectly here, but what the kids have are shares in two UK based funds,a Woodford fund and a Vanguard fund, which I believe are PFICs.  Are there non-PFIC fund options available in children's ISAs? I'd genuinely appreciate an example or at least a point in the right direction!

I don't want to buy shares in individuals companies as I don't want this to be a full time job! I looked into UK ETFs, but as a US person, you still run into PFIC issues, or have I completely misunderstood what's going on here?

It says quite clearly here that CF Woodford does not offer its funds to US persons: https://static.woodfordfunds.com/prd/2015/02/CF-Woodford-Investment-Fund-Prospectus_290317.pdf

It is unusual for a UK fund manager to offer any funds at all to US persons. You'd have to read the small print in each prospectus.

It says quite clearly here that CF Woodford does not offer its funds to US persons: https://static.woodfordfunds.com/prd/2015/02/CF-Woodford-Investment-Fund-Prospectus_290317.pdf

It is unusual for a UK fund manager to offer any funds at all to US persons. You'd have to read the small print in each prospectus.

Generally, I defer to you extensive knowledge of these things, but I do not believe that according to the Securities Act of 1933 me or my children are U.S. persons as we are not resident in the United States. This was confirmed by Hargreaves Lansdown because they also do not allow U.S. persons to hold accounts with them. When I queried this, they said that for their purposes we are not U.S. persons as we live in the U.K.

http://www2.goldmansachs.com/gsam/pdfs/DefinitionUSPerson.pdf

https://en.wikipedia.org/wiki/United_States_person#Securities_market_regulation

As far as non-PFIC, non individual stock options in a Junior ISA, I really would love a suggestion! 

Just because you can eat sugar does not mean that you should eat sugar and that the sugar won't be subject to any tax at any future date.

I would not be where you are.  Select something that is "US tax friendly" or don't bother with the ISA wrapper at all if that is what is restricting the choice.

Just because you can eat sugar does not mean that you should eat sugar and that the sugar won't be subject to any tax at any future date.

I would not be where you are.  Select something that is "US tax friendly" or don't bother with the ISA wrapper at all if that is what is restricting the choice.

I like the sugar analogy. Unfortunately, what's done is done and the money is in Junior ISAs; a mistake I won't make when the third little one arrives. Unfortunately, as the money is in Junior ISAs, there is literally nothing I can do to get it out, as it's locked away until the child is 18, at which point it's their money (unless the child is terminally ill or dies).

So, I guess I'm trying to use a sugar substitute. It's not as good as giving up sugar completely, but it's better than doing nothing at all. 

It says quite clearly here that CF Woodford does not offer its funds to US persons: https://static.woodfordfunds.com/prd/2015/02/CF-Woodford-Investment-Fund-Prospectus_290317.pdf

For anybody else that comes along to this thread, I contacted Woodford directly and they confirmed that for their purposes as a private individual with dual US/UK citizenship living in the UK, me and my kids are not US persons. Their lawyers might disagree with that, but that's the response their customer service gives anyway.