Investment fund vs. real estate for Portugal golden visa; PFIC for US citizens

I started a thread for us to figure it out. I got an extension on my taxes until I can figure out what to do with the 8621

If your fund qualifies for the QEF election (section 1293 on form 8621) that would be the most tax forgiving option. Here is a link to an interactive page with examples of how to fill the form out. Although the example they use is the most punitive, using section 1291 which will eventually tax your distribution as a capital gain at 39%. Otherwise if you can make the 1293/QEF election your gains will be taxed as income when you have distribution(s). You need to either consult with your fund to see if they qualify for QEF election. Many funds do that are private equity. Although a mutual fund will not.
Form 8691 Example

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After struggling through this a lot in the past week, here are my observations.

  1. I’ve seen people mention that we need to consult a tax professional. But just like all professionals, the biggest problem is finding a competent one. The tax professional I went with, didn’t make QEF election after providing the documents. Once I pointed out it to him, he made the change, but the total value field didn’t match up with my calculation. So I asked him how he came up with the number. Instead of explaining how he came up with the number, he just offered to use my number. I lost all confidence with him.

  2. Another nomad gate member recommended tax act software, but it had way weirder bugs just to calculate the state and federal taxes. I tried H&R Block and it asked me too many irrelevant questions and a form to fill up to match up with a tax accountant. Ditched it

Turbotax was the best for everything else, except PFIC. Turbotax also had an issue where it didn’t show my income in state taxes, but it did show up in the filing docs, so I will give it a pass.

I came to terms with the fact that my tax situation is really complicated and it is best to go with turbotax because , even if I magically managed to find a CPA, there is no way to know if he is competent. Now the only thing I needed to solve is the PFIC 8621 itself. And I think I found a video that helps in this case. I’m still planning to use some company to create my PFIC, but I’m going to validate the statement with the help of the video. In order to do this yourself, you need 2 statements.

  1. PFIC from IMGA
  2. Bison bank statement.
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Thanks for that link, Ravi! One thing that I found interesting when I went to another video on that guy’s youtube channel for the 8938 (How to Complete IRS Form 8938 For Specified Foreign Financial Assets - YouTube) is that he reported a PFIC fund on both the 8938 (Part II and VI) and the 8621, even though the wording on the 8938 seems to suggest that if you report a fund on the 8621, you don’t also report it on the 8938.

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That is about the shape of it. Adding non-US components makes things difficult, and while the concepts behind 8621 are straightforward, it involves mapping/interpreting non-US-normalized tax data into US norms and that is always going to be subject to interpretation. And frankly, very few US based CPAs are going to have any real understanding of the principles because so few Americans deal in PFICs in the first place, and if they do it tends to be with small positions in Canadian royalty trusts and the like where the dollar figures are so insignificant as to be irrelevant.

There are expat-focused CPAs of course who will have more experience, but probably not so many who understand PFIC - IMO this is probably primarily something that comes up in very-HNW and corporate space. So anyone who really knows much probably charges like it.

What I am saying here is that throwing out your US CPA due to not understanding PFIC may be throwing out the baby with the bathwater.

I cannot think that it is better to just outsource it. Then you have a foil should the IRS question you - you sought competent advice from a neutral third party expert. Then just keep doing your taxes however you have been doing them, while being aware of FBAR and 8938, both of which are pretty straightforward and IMO not terribly impacting even if you get it somewhat wrong.

I’ve been telling people that there is a specialty PFIC firm that will process your PFIC into an 8621 for you and to google for it. Rather than keep saying it, I will just post it here, since apparently it doesn’t google very well:

This is not a recommendation. I have not used them. YMMV. It seems like a straightforward service, though, much as I say above that the concepts behind 8621 are straightforward, so a firm that cranks them out as a focused service probably has it down pat. I do not think it absolves you from attempting to understand the lines of thought yourself, but this is always wise. That said, $300 to simply make it go away seems cheap at the price. @tkrunning maybe you want to talk to them.

(I have a CPA so I no longer have to solve this myself. Please do not ask for a reference, they are a resource I can only access through my employment relationship, for which I am exceptionally thankful. Please do not ask “how did they fill out my 8621 for X” - one, I do not want to tell you what funds I invested in, two, my tax forms will not be finalized until September-October so I couldn’t tell you even if I wanted.)

I thought of documenting some of the issues I faced with the CPAs so others can take an informed decision. Earlier I didn’t provide the name of the company, but I think it helps others to mention their names.

[gren](http://greenbacktaxservices.com/) Is the most incompetent company to do the work. Not only I had to correct them twice, but they didn’t know that there are tax implications after selecting QEF

  1. Mentioning to use QEF
  2. Incorrect total value of the fund

I was contacted to pay the invoice and I explained that their drafts are incorrect. This is the response I got.
“Hi Ravi, I’m not sure what you are referring to. However, once the draft is provided the invoice needs to be settled. I have a lot of experience filing these Forms and have not had any issues with them. Let me know if you have any questions.”
I won’t be paying for incorrect forms.

http://form8621.com/ had the same issues. I was only given the option of MTM and no election at all. I reminded them of QEF, then they corrected the form. But this time told me that I have to pay additional tax due to “deemed sale election”. Again I explained that this is the first time I’m filing, then they corrected it. But finally provided the form without my social on the form. But at least they got the taxes right and explained where it had to be mentioned in 1040.

The biggest takeaway to me was that you have to know what exactly that needs to go into the forms and understand about the nuances of pedigreed and non pedigreed investment at least in the basic. Else, you are definitely getting wrong forms given to you. @jb4422 is having his taxes done by a CPA through an employer and because of this, he might be able to do a hands off approach. The CPAs have some incentive to do correct work because they are associated with his employer. But for the rest of us, I think you have to skeptical of what these CPAs filling in your forms. Unless we have someone who went through with a CPA and had a good experience and shared that contact, you cannot rely on them.

My guess is that they have no skin in the game for filing incorrectly. I disagree with @jb4422 when he says that we can just use the argument that it was filed by a “CPA”. IRS may not charge you criminally, but they might make you pay for the mistakes made by the CPA.

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Ravi, Thanks so much for the detailed review of the various options you tried and your experience with them. I am wondering how to file these forms myself. My CPA has said he can help, but it is pretty clear, he needs to read up on this to do it as he has not done it before. So not sure if that is the best option, but I have not heard any one else on this board that has found a good option - you seem to know enough to even check the forms that you were given - I am completely at sea on this issue and would not even know that I got the forms filled wrong if I got them that way :slight_smile:

Hi Jim,

I recommend reading IRS Form 8621 - How to Complete QEF Election for a PFIC - YouTube which explains exactly our scenario. But the portion where he explains the line something needs to go on 1040 can change based on CPA. My recommendation is you watch the video and do the calculation yourself, then give the documents to form8621 and ask them to fill the form, validate what they give based on the video and then provide the details from 8621 to CPA. The details from them are clear on what needs to go where in tax return, so it should be easy for him/her.

Well, exactly. You will always be liable for a “wrong” calculation (or conversely get credit if it’s wrong the other way). However that’s just a monetary adjustment. It’s being charged with fraud that’s your real danger point. If you hired a CPA, the CPA may be an idiot, but you acted in good faith.

When it comes to something like PFIC and 8621, none of it’s an exact science. Is this item a dividend or interest? Is this “fair value increase” a cap gain, or ordinary income? Are these expenses something I can deduct somewhere? No, I haven’t done mine, but I’ve looked at the PFIC statement enough to say “this is subject to interpretation”.

I’m really sorry the form8621 people didn’t work out so well for you. I do think there’s only about so much they can do - whether you should or should not elect QEF is definitely NOT something I’d expect them to do, because they aren’t advising you on your tax situation, merely translating the PFIC statement into the fields of a 8621. I am glad to hear they managed that ok.

I agree none of this absolves you from understanding what the heck is going on.

As I’ve said, it seems likely most CPAs simply aren’t going to know jack about PFIC. I quite imagine it almost never comes up outside of corporate or high-net-worth - Portugal has overnight created a new customer base of not-entirely-HNW taxpayers needing HNW-like services. :slight_smile: (*) Which isn’t to outright excuse the firm you mention, but it frankly doesn’t surprise me either. Especially at a price point of $485. Most people paying $485 are not going to be partaking in PFIC or CFCs…

I’m sorry I can’t have a more direct input to the shared experience.

(*) this is akin to the kerfluffle Costa Rica caused by forcing foreigners to own their houses through CR corporate shells, thereby subjecting anyone AirBNBing their CR house to the CFC rules and CFC taxation, turning what was merely not-counting-a-side-hustle into international tax fraud…

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Our fund set-up a presentation with investors and a large International Tax Attorney firm based in the US. They told us point blank, you have waded into a whole new world and you no longer can use, “good faith” arguments, ignorance or as you have said, “subject to interpretation”. Basically, cover your ass and hire an experienced firm (Accounting and/or Attorney) that has deep International Tax track record-otherwise the IRS will not be kind to you in terms of penalization.

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I think multiple people have made it relatively clear we should hire someone to handle this. I for one would love actual recommendations of firms people have used and have had a good experience with for US folks

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Since tax day is Monday, with all the PFIC and 8621 talk, don’t forget to file your FBAR with the Dept of Treasury for anti-laundering compliance by Monday too.
NFFBAR.pdf (177.7 KB)

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I think the problem here is the one I pointed at. This whole GV fund thing has created a whole new market - not-HNW folks with one or two investments that happen to be somewhat complicated but not really. The PT GV put the price of the investment just within reach of the average upper-middle-class who is willing to put a significant chunk of their life savings into it.

The CPAs people here have been using to do their taxes will have had no meaningful experience with this stuff, and the easy-to-find CPAs with experience with this stuff aren’t interested in you or are going to charge you far more than you want to pay. I dunno, maybe you suck it up and pay the 2-4k they’re going to ask, for peace of mind. My personal opinion is that if you hire a form8621-like firm to handle it, you’re fine, but that’s my personal opinion only, and I suppose at this point that’s only worth so much because my skin in this game is now zero. If it weren’t for my CPA, that is what I would have done.

(I didn’t decide to go with the CPA because of the PT GV; my situation got much more complicated because of other completely unrelated factors. This PFIC stuff is low on the list of my concerns.)

@tkrunning I see a significant opportunity for you here to canvass firms and garner referral fees. :slight_smile:

If we don’t actually know the year-end values of our funds yet, does it make sense to file the FBAR now or to just file it once we get the forms? It looked to me like there is an automatic 6 month extension if you don’t file by April 15th (the below is taken directly from the IRS website).

When to File

The FBAR is an annual report, due April 15 following the calendar year reported. You’re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You don’t need to request an extension to file the FBAR. See FinCEN’s website PDF for further information.

I both agree and disagree with this.

  1. We all agree that this is a whole new world.
  2. I agree, ignorance is never a useful excuse. Ever. “I didn’t know I had to file FBAR.” “I didn’t know it wasn’t ok to hit that pedestrian.” Just does not work.
  3. I disagree in that ALL of this is subject to interpretation and good faith. You are trying to take data compiled based on foreign accounting standards and format it to US tax standard. There’s best practice but it’s hardly some exact fit. You do the best you can, and have an argument to defend it with. The only difference with a CPA is that they have more experience in doing the mapping and making the arguments.
  4. I agree finding and having competent tax help is a good idea.

My personal opinions, YMMV, I am not your lawyer or CPA.

I’ve spent the last year or two having to deal with messy foreign tax matters unrelated to this, both in doing lots of reading, and paying for face time with a experienced tax lawyer - who, crucially, was not trying to sell me anything and therefore unbiased. (No, I am not a tax dodger. Let’s call it “the PT GV fund PFIC problem” along a different dimension.)

One of the things I’ve learned is that there are a lot of law firms out there providing all sorts of information online… but note how they always talk about how terrible and scary the IRS is and how you need to Call Them Now. Well, yeah, they have a point, but they’re also talking their own book - like anything else they’re looking for customers, and scare tactics work. And for some people it is warranted. Everyone all the time? shrug

Another thing I’ve learned is that by and large the focus of the IRS is on “substantially correct”. They care that you have disclosed everything and that the amount of tax paid is what it supposed to be. The big cases you see are around either (A) failure to disclose (“what, I had to declare this offshore bank account?”) (B) failure to declare income (“what, this AirBNB income from offshore had to be claimed?”) - which really a form of failure-to-disclose. The rest is administrative quibbling subject to good faith and interpretation.

There are two types of forms - information forms and calculation forms. 8938 is an information form. Woe to you if you don’t file it - failure to disclose is where you get into criminal penalties. 114 is a calculation form. If you put the foreign taxes somewhere else and the math comes out right anyway, it’s hardly the end of the world.

Further, magnitude matters. Sure, if you don’t declare the 50k of cap gains on your fund, yeah that’s a problem. My PFIC statement shows a whopping EUR 600 of income. There’s just only so far wrong you can go with how you characterize the line items of your EUR 600.

You can overthink this.

I think the ideal is that you find a CPA with knowledge and work with them to file your taxes. From what I am seeing, I fear that this ideal may not be possible for many. In this case, I suspect that if you file your FBAR, 8939, and 8621, and make a good faith effort to get it right, you’ll be just fine. Not that I don’t recommend finding a good tax lawyer to have in your back pocket in case the IRS calls.

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Sorry, was off the grid and didn’t see the reply and also not a lawyer or accountant, however this one is for anti-money laundering. If you made a fund investment, it’s probably pretty safe to say you’re down from the max given the fees to invest and stronger dollar toward the end of the year. I reported my bank checking balance and got a statement from the bank holding my participation units just stating the original investment (€350k). Within 24 hours, it was approved with an email advising to print and save the approval. Not being the IRS, I think this one they’re looking for an order of magnitude of how much and where it is.

Hi. Not too experienced in this forum. Is having an investment in Mercan hotel project counted as PFIC? Arton Capital says no as it will be a title deed in my name. Just don’t want to deal with PFIC, thus triggering increased cost to file taxes.

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No. it is a purchase of property and a rental
agreement. neither fits the description.

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Hi, I want to tap the infinite wisdom of this group about PFIC. My question is actually pretty simple. I received the PFIC document from Aston Gold which I invested in mid December last year. My CPA filed for extension on my 2021 tax returns because I was not able to get the PFIC information from Aston Gold before 4/15. I thought I saw somewhere on this forum that the form 8621 needs to be filed within 6 months of investment. Is it true that I have to file within 6 months of investment (ie, mid June 2022) even if my CPA has filed for extension (which means by mid October)? Please advise. Much appreciated!

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This is no amount of wisdom, and is certainly not tax advice. With that said, when I read the IRS instructions (Instructions for Form 8621 (01/2022) | Internal Revenue Service) I don’t see a “within 6 months of investment” requirement (and I certainly hope there isn’t one). The two key things I see are:

"When and Where To File

Attach Form 8621 to the shareholder’s tax return (or, if applicable, partnership or exempt organization return) and file both by the due date, including extensions, of the return at the Internal Revenue Service Center where the tax return is required to be filed.

If you are not required to file an income tax return or other return for the tax year, file Form 8621 directly with the Internal Revenue Service Center, Ogden, UT 84201-0201."

and

"When To Make the Election

Generally, a shareholder must make the election to be treated as a QEF by the due date, including extensions, for filing the shareholder’s income tax return for the first tax year to which the election will apply (the “election due date”). See Retroactive election below for exceptions."