Form 8621 is required by U.S. citizens and residents that are direct or indirect shareholders of a Passive Foreign Investment Company (PFIC). Absent any exception, each stock that is held during the year is required to be reported on a separate Form 8621 under the following circumstances:
· Receives certain direct or indirect distributions from a PFIC
· Recognizes gain on a direct or indirect disposition of PFIC stock
· Is reporting information with respect to a QEF or section 1296 mark-to-market election
· Is making an election reportable in Part II of the form
· Is required to file an annual report pursuant to section 1298(f). See the Part I instructions, later, for more information regarding the person that must file pursuant to section 1298(f)
A foreign corporation is a PFIC if it meets either the income or asset test described below:
· Income test – 75 percent or more of the corporation’s gross income for its taxable year is passive income (as defined in section 1297(b)).
· Asset test – At least 50 percent of the average percentage of assets (determined under section 1297(e)) held by the foreign corporation during the taxable year are assets that produce passive income or that are held for the production of passive income.
There is not a specific penalty for failure to file Form 8621. However, the regulations coordinate the Form 8621 filing requirements with the Form 8938 filing requirements. Section 6038D requires a U.S. individual to disclose any directly held foreign financial assets on Form 8938, if the aggregate value of the individual’s foreign financial assets exceeds the filing threshold. An exception to the disclosure requirement applies to any foreign financial asset the individual reports on another disclosure form, such as Form 8621. A U.S. individual shareholder who fails to disclose a directly held PFIC investment on either Form 8621 or Form 8938 when required can be subject to a $10,000 penalty under §6038D(d).