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PFIC QEF Election Guide for U.S. Expats

What Is a PFIC (Passive Foreign Investment Company)?

If you’re a U.S. citizen living abroad, there’s a strong chance you already own a PFIC — even if you don’t realize it.
A Passive Foreign Investment Company (PFIC) is generally a non-U.S. investment that meets certain income or asset tests. Common PFICs include:

Foreign mutual funds

Non-U.S. ETFs

Some foreign pension and retirement investments

Foreign investment accounts bundled with insurance products

PFICs are one of the most punitive areas of U.S. tax law — especially for expats who unknowingly invest overseas through local banks or advisors.

Why PFICs Are a Major Problem for Expats

Without proper elections, PFIC income may be taxed at the highest U.S. tax rate, plus interest charges even if the investment performed modestly.
Common expat PFIC issues include:

  • Buying “normal” mutual funds in a foreign country
  • Investing through employer
  • sponsored foreign plans
  • Being advised locally without U.S. tax considerations
This is why PFIC planning is not optional for Americans abroad.

What Is a QEF Election?

A Qualified Electing Fund (QEF) election allows you to be taxed on your share of a PFIC’s earnings annually, instead of facing harsh default PFIC taxation when you sell.

In simple terms:

You pay tax each year on income (even if not distributed)

You avoid excess distribution penalties

You gain predictability and control over your tax outcome

For many expats, the QEF election is the most favorable PFIC strategy — but it must be done correctly and on time.

How to File a QEF Election (Form 8621)

To make a QEF election, you must file Form 8621 with your U.S. tax return.
Key requirements include:

Annual PFIC income statements from the foreign fund

Accurate tracking of earnings and basis

Timely filing with the IRS

Not all foreign funds provide the information required to make a QEF election — which is why PFIC planning must happen before investing, not after.

Late QEF Elections and Catch-Up Filings

If you already own PFICs and didn’t make a QEF election in the first year, all is not lost — but the fix is complex.

Options may include:

Retroactive QEF elections

Amended returns

IRS procedural relief (when available)

These strategies require careful analysis and professional execution to avoid triggering unnecessary penalties.

Common PFIC Mistakes We See

Expats frequently:
  • Assume foreign mutual funds are “tax efficient”
  • Fail to file Form 8621 entirely
  • Make elections incorrectly or too late
  • Rely on non-U.S. advisors unfamiliar with IRS rules
Unfortunately, PFIC errors can follow you for years.

How We Help Expats With PFICs

At eTax Global, PFICs are one of our core international specialties.
We help U.S. expats:

  • Identify existing PFIC exposure
  • Determine whether a QEF election is possible
  • Prepare Form 8621 accurately
  • Coordinate PFIC reporting with FATCA, FBAR, and foreign tax credits
  • Build tax-efficient investment strategies going forward

Schedule a PFIC
Consultation and get clarity before penalties stack up.

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