U.S. persons (U.S. citizens or green card holders) living in
Canada or abroad who have investments outside the U.S. should be
aware of the potentially onerous tax filing requirements imposed by
the IRS, and how those rules will apply to their investments. IRS
rules can be particularly complex when investments in foreign
companies or funds earning passive income are involved.
This article expands upon the discussion in the companion piece,
"
U.S. tax pain: Canadian mutual funds and ETFs," in this
U.S. Tax Alert. This article digs deeper into the
intricacies of the definitions and the filing requirements for
PFICs and CFCs.
Passive foreign investment companies
A passive foreign investment company (PFIC) is a foreign-based
corporation that earns at least 75 per cent of its gross income
from passive activities, or that sees at least 50 per cent of its
assets produce passive income. Passive income includes interest,
dividends, royalties, rent, annuities and most
