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

Residencies & citizenships Portugal Golden Visa šŸ‡µšŸ‡¹
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If we donā€™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 donā€™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. Youā€™re allowed an automatic extension to October 15 if you fail to meet the FBAR annual due date of April 15. You donā€™t need to request an extension to file the FBAR. See FinCENā€™s website PDF for further information.

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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. ā€œI didnā€™t know I had to file FBAR.ā€ ā€œI didnā€™t know it wasnā€™t ok to hit that pedestrian.ā€ 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. Thereā€™s best practice but itā€™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.

Iā€™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. Letā€™s call it ā€œthe PT GV fund PFIC problemā€ along a different dimension.)

One of the things Iā€™ve learned is that there are a lot of law firms out there providing all sorts of information onlineā€¦ 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 theyā€™re also talking their own book - like anything else theyā€™re looking for customers, and scare tactics work. And for some people it is warranted. Everyone all the time? shrug

Another thing Iā€™ve learned is that by and large the focus of the IRS is on ā€œsubstantially correctā€. 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 (ā€œwhat, I had to declare this offshore bank account?ā€) (B) failure to declare income (ā€œwhat, this AirBNB income from offshore had to be claimed?ā€) - 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 donā€™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, itā€™s hardly the end of the world.

Further, magnitude matters. Sure, if you donā€™t declare the 50k of cap gains on your fund, yeah thatā€™s a problem. My PFIC statement shows a whopping EUR 600 of income. Thereā€™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, youā€™ll be just fine. Not that I donā€™t recommend finding a good tax lawyer to have in your back pocket in case the IRS calls.

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207

Sorry, was off the grid and didnā€™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, itā€™s probably pretty safe to say youā€™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 (ā‚¬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 theyā€™re looking for an order of magnitude of how much and where it is.

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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 donā€™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 (12/2024) | Internal Revenue Service) I donā€™t see a ā€œwithin 6 months of investmentā€ requirement (and I certainly hope there isnā€™t one). The two key things I see are:

"When and Where To File

Attach Form 8621 to the shareholderā€™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 shareholderā€™s income tax return for the first tax year to which the election will apply (the ā€œelection due dateā€). See Retroactive election below for exceptions."

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Thanks Ed for your prompt reply. This is very helpful!

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To the best of my knowledge (which is admittedly limited when it comes to the IRS) the 8621 is just another form like a million other forms that go with your 1040 depending on your situation. If your CPA filed an extension then it is not due till the return is filed. I attended a session hosted by the Fund that I invested in and they had a legal eagle basically say, ā€œfile an extension because the chances are that your fund will not get you the PFIC before April 15thā€ and you can make the QEF election after you receive the PFIC

214

Thanks Ravi! Much appreciated.

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I ran into this article which is like an introduction to the subject, helped me know where to focus my research.

Hope it will help you too

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Thanks for the links. I got my PFIC declaration from Pela Terra and had already done my federal return in Turbotax (but not filed) to pay estimated taxes for 2021. I also filed my FBAR. Now Iā€™m looking for someone to assist with the forms 8938 and 8621. I found a local expat tax expert but was quoted $2500 which seems outrageous given I didnā€™t even earn any foreign income in 2021. I am considering just doing the QEF election myself, but itā€™s only going to get more complicated for 2022 and 2023, so Iā€™d be kicking the can down the road.

How did you find Online Taxman to be? Do you mind me asking what you were charged, and for what services?

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217

$2500 does seem a little ridiculous, especially considering you were able to get your entire return done in Turbo tax it cannot be THAT complicated. I think you might want to just shop around. I interviewed a few CPAs that specialized in international taxation compliance before I settled on one. The IRS provides a list of registered enrolled agents as well, you can use that as a starting point

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219

https://community.nomadgate.com/t/us-imga-investors-tax-filing/47613/50

cross-posting this here since this was the original thread for PFIC stuff.

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220

I invested in Heed Capitalā€™s Aston Gold and Iberis Capitalā€™s Portugal Yield Fund. Both have provided PFIC statements and are QEFs. So far so good.

I must make a special mention of Iberis, which arranged an excellent presentation by CPAs for US taxpayers.

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221

So, I finally got around to dealing with paperwork for PFICs. It was interesting.

My expensive accountant could not just plug and chug. We had to discuss the PFICs, what the funds were doing, and it ended up that I was making the calls on how to classify things. I guess I understand why and how this happened this way, but if I werenā€™t as well-versed in these kinds of things as I am, I wonder how that conversation would have gone. Or would he have had to call the funds/banks himself to get answers? Probably. For which I would have paid his hourly rate of course.

The issue is that PFIC statements can be, at bestā€¦ not very helpful. When they are written by someone not versed in US tax law, you canā€™t really be sure what anything actually means. What is a ā€œcommissionā€? Did you mean ā€œrealized capital gainā€ or did you mean ā€œunrealized capital gainā€? The one you get may easily lend itself to a plug-n-chug. There is, however, no guarantee, as Iā€™ve just learned.

Mark to market is definitely an easier election, as long as you donā€™t mind paying ordinary rates on any long-term cap gains. Indeed in some cases it might be more advantageous if the fund has a very high expense base, since the fund expenses may not pass through to you. (This will just depend on the mechanics of any given fund.) I feel like I may have to have a discussion with my fund managers to make sure they have the ability to break out long/short since itā€™s likely to be pretty significant in the case.

At the end of the day it didnā€™t matter for me because the economic value of what actually happened in the funds was basically near zero - merely filing the form and electing QEF is more than sufficient for this year. Next year, weā€™ll see.

I am left wondering how a third party 8621 processing service can manage to turn these PFIC statements into 8621s, in truth. I suppose the win there is that whatever they crank out, you can say ā€œI hired a qualified advisor who characterized it as Xā€, thus shielding you from the risk of criminal penalties.

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222

I tried to do the PFIC myself and it was not that complicated actually. Simple calculation to find out the ordinary income and long term capital gains number and plug these in appropriate places in the 1040. Thatā€™s all.

I followed this video. https://www.youtube.com/watch?v=7ZLJldaZTGY
Very straightforward.

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223

I think the devil here is in the details.

Suppose ā€œcommissionsā€ is broken out. Execution commissions are generally built into the basis of a cap-gain and not expense items. If the PFIC breaks them out, do you offset them? But then, what is being called ā€œcommissionsā€? If by that they mean ā€œthe managerā€™s feeā€, then itā€™s completely not deductible.

Suppose interest expenses are broken out. Those are, under IRS code, very definitely deductible to you, if they are passed through. Do you carry those over into 4952? Do you offset those against the listed ordinary income?

I think it can be easy, if the PFIC youā€™re given is done well with the one or two simple line items. Since there is no ā€œstandard PFIC formā€ that a company is supposed to fill out, it can also go quite awry, despite the form being created and provided with the best of intentions.

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I invested in IMGA Acoes which is a publicly traded fund. So there were only 2 line items listed on the PFIC. I guess I got lucky with my choice of investment.