Think you know your PFIC status? Think again: application of the look-through rules

The IRS has released Private Letter Ruling 201322009, which responds to a request for clarification on the proper application of certain ‘look-through’ rules for the purposes of determining whether a foreign corporation is a ‘passive foreign investment company’ (PFIC) for US federal income tax purposes.

The PFIC rules aim to place US persons that own foreign investment companies and US persons that own US investment companies, such as regulated investment companies, on an equal footing by limiting the ability of US persons to defer US income tax on foreign investment income through the use of foreign companies and by disposing of the equity of such companies, converting ordinary income to capital gain.

Generally, if a foreign corporation is a PFIC because it meets prescribed income or asset tests, then US equity holders are subject to a harsh tax regime, including the denial of any capital gain treatment…

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