Passive Foreign Investment Company (PFIC)

Definition

Under Section 1297, a foreign corporation is a PFIC if 75 percent of its gross income is passive or 50 percent of its assets produce passive income. U.S. shareholders of PFICs face punitive default taxation under Section 1291 unless they make a QEF or mark-to-market election.

Examples

• A foreign mutual fund held by a U.S. individual is typically a PFIC.