IRS Issues PFIC Regulations: A New Start to an Old Beginning

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.

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John Harrington

About John Harrington

John Harrington is the co-leader of Dentons' US Tax practice, which was recognized by The Legal 500 in 2020 for outstanding work in international and non-contentious tax. Recognized by Chambers Global as a Notable Practitioner, he advises clients on inbound and outbound transactional and compliance issues; international tax legislative, regulatory and treaty matters; and a variety of domestic tax issues.

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Marc Teitelbaum

About Marc Teitelbaum

Marc Teitelbaum is the former chair of Dentons' Tax practice, which was recognized by The Legal 500 in 2020 for outstanding work in international and non-contentious tax. Marc has been involved in advising public companies, underwriters and investment funds principally in the following areas: acquisition and disposition of domestic and foreign corporations whether taxable or tax-free transactions; the US tax consequences of foreign operations and foreign joint ventures, in particular, multinational manufacturing and sales operations; debt and equity financings; and investment strategies in partnership form, including tax- and accounting-advantaged structured domestic and cross-border financing arrangements.

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Andrea Sharetta

About Andrea Sharetta

Andrea Sharetta is a member of Dentons' Tax practice. She has expertise in federal income tax matters, including taxable and tax-free mergers, acquisitions, dispositions and other restructurings; bankruptcy and insolvency reorganizations; taxation of consolidated groups of corporations; and corporate joint ventures, with a concentration on cross-border tax planning and taxation of nonresidents.

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