Dual Citizen Kids and gifts from UK only grandparent

Hi All,

I've done a fair bit of research on these boards and elsewhere regarding my situation, so I'm hoping that somebody can confirm my understanding and plan.

Anyway...my dual citizen (UK/US) children (both less than 7 years old) have each received about £5000 from their UK grandfather.

First Question: Do I need to report this to the IRS? 
I don't think I do  as it is under the $14000 limit that means a gift report must be filed.   

Second Question: This money is currently in a stocks and shares ISA, which is stupid as I did know better just didn't think about it at the time.  However, the fund has lost money, so if I divested from the funds now, there would be no PFIC reporting requirements as there have never been any capital gains?  (this seems like wishful thinking).

Third Question: Is the best way, ie relatively low maintenance with minimum tax paperwork (I can't afford to pay for advice), to invest this money in US registered funds (like one of the Vanguard ETFs) that have UK reporting status? If I can get one of these funds within an ISA wrapper, great, just U.S. CGT tax to pay. If not, I'll have to pay UK CGT and use foreign tax credits to offset U.S, CGT, correct?

I've got more questions, but this is probably a good start!

Thanks in advance.

A PFIC disposition requires a separate return by the child as Form 8621 cannot be included on a kiddie tax return.

Both the child and you may have separate FBAR filing requirements for the same account (the child as owner; and you as signatory).

Thanks for the response, I figured about the FBAR, indeed that's what gave me the "oh sh!t" moment reminding me that not only did I need to report on the account, but that I also had also stupidly put the money into a stocks and shares ISA. Actually though, as the accounts owned by my children both currently are under the limit, does that mean that only I have to file an FBAR (I do have to file an FBAR). 



Do you have any advice on dealing with the form 8621?  I can answer some, but not all the questions.  Is it worth filling it out and sending a covering letter explaining the situation and asking for mercy, especially as I can show that now gains were made?

What a headache!

Form 8621 has well written instructions which will need to be followed to compute any tax. The 8621 is a part of a tax return or an amended return. For US purposes, any loss will be different from the Sterling amount because of exchange rate fluctuations.