PFIC or Not

Hi,

A few years ago, I used one of the US-UK tax services to help prepare my taxes. Overall, it was helpful, but there is one thing that I don't think is right: I have a few shares of a UK company that handles fund management.  The tax advisor/preparer was certain this is a PFIC. I went with that and have filed PFIC forms ever since. Basically, this UK company is like a smaller version of Morgan Stanley; the shares are directly in the company and I have the shares certificate. Is it a PFIC? It's not held in a brokerage account or similar.

Speaking of which, I have a second question: does having a UK brokerage account to buy/sell shares make it likely the shares+account would be seen by the IRS as a PFIC?

Thanks!

Hi

PFIC rules are complex and probably need you to look at the exact details of the investment to be absolutely certain - and it may be the case that your US preparer has done that, so they're in a better position to be sure.

That said, if you have invested in a company whose business happens to be fund management - and you just own shares in the company, there are no underlying investments in the funds that they invest in - to my mind, it's not a PFIC, it's just shares held in a company (in the same way as if you held shares in any other UK based company).

For your second question -  a UK (or other non-US) brokerage account in it's own right won't be a PFIC - it's about the investments held within it.  So if you held a brokerage account that held shares directly in a few companies, but also invested in funds - the brokerage account itself wouldn't be considered a PFIC, and neither would the shareholdings. However, each investment in a fund would likely be a PFIC.

That's great and makes sense.  I've been meaning to ask a tax professional about this, but have been tied up with the basic tax reporting(!). When I get some feedback, I'll add it here.