Expatriate Tax Maze (Part 2): Passive Foreign Investment Companies (PFICs) Explained

If you're a foreign national living in the United States and you hold a mutual fund, hedge fund, or private equity interest outside the US, there's a very good chance you own what the IRS calls a Passive Foreign Investment Company — or PFIC. The rules around PFICs are among the harshest in the entire US tax code, and getting them wrong can be enormously expensive.In part 2 of Navigating the Expatriate Tax Maze, Dave Zydek of BDO walks through:What actually makes a foreign investment a PFIC (the income test and the asset test)The three tax regimes you can fall under: the default method, the QEF election, and the mark-to-market electionWhy the default method can push your effective tax rate above 40% or even 50%The Form 8621 disclosure requirements — and why missing one can leave your US tax return open to audit indefinitelyCommon exceptions, including PFICs held inside treaty-recognized retirement plans like UK SIPPsPractical, plain-English guidance for anyone managing foreign investments while subject to US tax.Brought to you by CAW Network USA in partnership with BDO.