On December 30, 2013, the US Treasury Department (the “IRS”) published a package of proposed, temporary, and final regulations relating to Passive Foreign Investment Companies (“PFICs”) and their shareholders. The most significant component of the package is its guidance on the new annual filing requirements for PFIC shareholders, but the package also includes other, generally minor, changes to existing rules governing PFICs and their shareholders.
The IRS issued the regulations just in time to meet a self-imposed year-end deadline: the IRS wanted the new reporting rules to become effective before 2013 ended so that the new reporting rules would apply during the next filing season. Still, the package includes good news for some PFIC shareholders since the new regulations eliminate a retroactive filing requirement for 2011 and 2012 taxable years that had been threatened in a 2011 IRS notice.
The new regulations address in a limited way a package of technical PFIC regulations originally proposed by the IRS in 1992. Because the new package includes, in a modified form, a small portion of the 1992 proposed regulations, the new package withdraws that portion of the 1992 proposed regulations. The remaining (and outstanding) portion of the 1992 proposed regulations includes provisions that have been severely criticized. So, US investors and tax practitioners must await further IRS action to clarify the status of those proposed provisions and the interpretation of the applicable statutory rules.