IRS Proposes Changes to PFIC Tax Rules (Feb. 10, 2022)

The IRS recently proposed a change that will impact elections made by U.S. taxpayers with respect to their interests in a passive foreign investment company (PFIC). Under prior law, when an interest in a PFIC is owned by a domestic partnership, the partnership itself is treated as the U.S. shareholder for purposes of making PFIC elections. A new rule proposed by the IRS on January24, 2022 would treat the partners in the domestic partnership as the PFIC shareholders, rather than the partnership itself. Any qualified electing fund (QEF) or mark to market elections for the PFIC will be made at the partner level if the proposed rule change becomes effective. Similar rules will also apply to treat S corporation shareholders as the PFIC's "U.S. shareholders" for various elections made with respect to the PFIC. For more information on PFICs, visit Tax Facts Online.