I’ve been informed that if you elect QEF, then the income flows through as whatever it actually is, and I imagine that’s part of the point of the PFIC statement, to get the fund to give you the exact characterization of the income so that it can be reported correctly.
Having just had a look at a PFIC statement, the equiv here is probably your sched K-1 that you had to do for your MLPs, only not so bad because you aren’t going to be dealing in abstract stuff like depletion or tax credits. Hopefully.
Another difficulty you might have is that it’s mark-to-market in the sense that it doesn’t matter if you actually received the cash/income in your account, you still owe the tax. If the fund realized a gain, you owe tax on it. It’s up to you to request a distribution on whatever terms the fund is willing to do so - or if you can’t, pay it yourself. If you contractually tied up the money in the fund such that you can’t get at it, that’s your problem, not the IRS’s. This is another factor you might want to consider - if your fund goes way up in value, but there’s no provisions for you to receive those gains because they’re tied up for 6 years, you better plan to have the cash handy to pay the taxes.
So thinking this through, the net of it is nothing more than that the IRS is making your foreign fund conform to US tax accounting norms if you want regular US tax treatment, and if the foreign fund won’t do the accounting in the way the US expects, the IRS assumes the worst on your behalf. Not that unreasonable, really. What you’re dealing with here is not much different than if you invested in a VC fund in the US, besides semantics. It really isn’t.
In further thinking about this, therefore, the biggest difficulty here for most of you may well be simply that it’s not the same as buying stocks or bonds in your brokerage account like you’re used to. These are not retail investments, and the moment you step outside that sphere, and definitely the moment you step offshore, the rules get complicated.
None of it bothers me because, while I haven’t done THIS investment, I’ve done stuff like it before, and yeah, I have a friendly tax lawyer who, while I still do my own taxes and don’t need him for much, gives me a level of comfort because if something goes wrong or there’s something I don’t understand and can’t figure out on my own research, I know I can turn to him for help. (And sorry, no, I can’t share his name/number, he does corporate work, I’m a special case.) Those are just the rules of the game.
I’m not trying to scare anyone off here. I’m really not. I’m just suggesting that it’s a different game and there’s different rules. It’s not something to be scared of, but it isn’t free either. It’s like getting the visa itself. You can DIY but most people most of the time hire a lawyer to help, and the rules are such that maybe these funds aren’t necessarily for everyone.