Other Anti-Deferral Provisions Tx 8300

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Other Anti-Deferral ProvisionsTx 8300
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Learning Objectives
You should be able to

1. Explain the reason for PFICs and QEFs,
2. Identify PFICs,
3. Calculate the tax and ________ charges resulting
   from PFIC status, and
4. Explain the benefits of _____.

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Barriers to Tax Deferral

• Controlled foreign corporations
• ____________ ownership can avoid CFC status
• _____________ abroad avoids Subpart F
• __ _______ activity avoids Subpart F
• _______ foreign investment companies

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PFIC Defined
Foreign corporation
if
Foreign __________ companies usually are PFICs.
Also, foreign _________ companies are vulnerable
when they
or

1. Experience operating ______
2. Possess ___ business assets
3. Raise _______
4. ________ large holdings

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Example PFIC Status
Three NRAs and ___ U.S. citizens own equal
amounts of TourCo. Sixty percent of TourCos
assets earn passive income, and ___ of TourCos
income is passive. Under what conditions does
TourCo avoid PFIC status?
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PFIC Results

• U.S. persons owning PFIC stock
• Pay ________ charge when they
• Receive ________ or
• Realize ____ from selling stock
• Differs from CFC regime
• No __________ dividends
• U.S. persons owning lt ___ pay interest charge

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PFIC Excess Distributions
Non-Excess Portion is _______ Gross Income
Distribution
Total ______ Distribution
Current Aggregate Distributions
Average Distributions in Prior __ Years
- ____ x

Gross income if allocable to
Allocated Over _______ Period
Current year, Pre-19___ years, or Days before
____ status
Used to calculate ________ ___ ______
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PFIC Deferred Tax Amount
______ distribution allocable to post-1986 PFIC
years other than _______ year times ___ statutory
rates
Aggregate Increases in _____
Deferred Tax Amount
Interest on aggregate increases in taxes using
rate _____ points higher than Federal _____-term
rate
Aggregate Amount of ________
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Example Deferred Tax Amount
On 1/1/01, DomCo bought all shares in a PFIC. The
PFIC paid cash dividends to DomCo as
follows 10,000 on 12/31/01 10,000 on
12/31/02 11,000 on 12/31/03 12,000 on
12/31/04 ______ on 12/31/05 Assume the top
corporate tax rate is ___ and the applicable
interest rate is ___. Calculate the deferred tax
amount in 2005.
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PFIC Problems and Solutions

• Negative aspects of PFIC regime
• Retroactive loss of ________
• ___ statutory rates
• No _______ gain treatment
• Mark-to-______ elections
• Qualified ________ funds

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Mark-to-Market Election

• Available only if PFIC stock has
  clearly-established ______ value
• ________ gain or loss recognized ____ year
• _____ of shares adjusted
• Benefits
• No interest charge
• Otherwise unrealized losses __________
• ____ applicable rather than ___ statutory rates

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Qualified Electing Fund

• Election applies to ___________, not PFIC
• _____ treatment for income (not ______)
• Benefits
• No interest charge
• ____ applicable rather than ___ statutory rates
• _______ gains flow through from QEF to owner
• Selling QEF stock can result in _______ gain