Thanks for asking, Jim. In case either of you would not mind sharing, Iād love to have her/his information if possible, as well. There are a lot of accountants out there but not many who are comfortable with Working with folks in the US/Portugal.
Tax season is upon us. Iām bumping this thread back to life in hopes of developing consensus about the organization and filing requirements for GV funds such as Rock Capital. I have re-read the whole thread from the top and realize that people have offered perspectives previously; I will strive to channel some of that wisdom in my observations. I welcome collaboration to establish consensus on best practices.
Questions
Question 1: What is the legal nature of a fund like Rock Capital or similar GV funds? Partnership, corporation, unit trust, or something else?
Question 2: Which forms are required for all investor?
Question 3: Which forms are required for a new investor who subscribed in 2021?
Question 4: Are there any negative consequences for filing unnecessary forms when the requirements are amiguous and the potential penalties for failure to file are severe (as they are)?
My observations
I donāt think that Rock Capital meets the test of a partnership:
A partnership is the relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor, or skill and each expecting to share in the profits and losses of the business
Form 8865: Foreign Partnerships with US Persons 2024
I do not believe that I am on the hook for the fundās liabilities in a worst case scenario, though Iāll seek confirmation from the fund manager.
If the fund is not a partnership, Form 8865 does not seem necessary. Form 926 may still be required. Form 926 is relatively easy, so the downside of filing it as a precaution seem low unless folks have strong and unexpected opinions regarding question 4.
Whether Rock Capital is currently a PFIC or not, a solid case has been developed by several posters that it will be in the future, and that one might as well start filing form 8621 now, with a QEF election. The alternative is to file a protective statement, but the cost/benefit isnāt attractive for dealing with additional tax complications down the line IMO.
As for form 5471, this form is required for anyone who is a director, owns a 10%+ stake, has a controlling constructive interest in conjunction with other related persons, or invests in certain exotic insurance products. None of these conditions apply to me; my plan is to include a letter explaining my reasoning for why I am not required to file.
Summary
Question 1 is unresolved.
Regarding Questions 2 and 3:
I will certainly plan to file form 8621 (PFIC) with a QEF election.
Absent some convincing guidance to the contrary, I will file form 926, only in my first year and possibly my last year as an investor.
My decision about form 8865 is still pending. I predict and hope that it is not necessary, but I need more information to determine this with certainty.
Form 5471 seems unnecessary, unless someone was unlucky enough to own 10%+ of a fund by value in its earliest days of acquiring investors.
As for Question 4, my intuition says that it shouldnāt hurt to file an unnecessary form, but I could be convinced otherwise.
With respect to unnecessary forms:
Iām going to write this all out so you all get a perspective on it, though I fear itās overkill.
If you donāt file a form, BAD BAD BAD OMG YOU WILL BE IN SO MUCH TROUBLE. Thatās of course the kind of thing all the āoffshore expert firmsā are screaming about in their ads about. Common example, all these AmCits who bought property in foreign countries, so they have these corporate shells they had to use to own the property there because thatās how it works for whatever reason. I see a lot of those for some reason.
I had a situation relevant to this kind of thing. So I pinned down my new accountant. I know he has significant experience with both complicated personal situations and multinational corporate taxation, so not some inexperienced personal accountant. (Friend of a friend sort of thing.) He pulled in one of the firmās tax lawyers because I wanted a legal opinion. So I have both a legal and accounting perspective on this, bought-n-paid-for.
YMMV of course, and consult your own legal eagles for your situation, this is not legal or tax advice, etc.
It seems to boil down to this.
- Yeah, if you donāt file all the right forms, of course youāre in trouble.
- IF those forms actually would have conveyed useful information relevant to how much tax you need to pay.
So the person who unknowingly AirBnBād his house that s/he owns through a ForeignLand corporate shell, yeahā¦ doesnāt matter that the renter paid you as a private person, the economic activity involved the corporate asset. If the IRS finds out and you havenāt filed 5471 because you thought it didnāt matter cuz it happened in ForeignLand and ForeignLand didnāt ask no questions, your ass really is grass like those ads claim and itās gonna get mowed and rolled like a putting green, call one of those law firms Right Now.
If however the property is just sitting there doing nothing - no renters, no income, nothing except maybe you living in it - and so the corporation is not involved in any economic activity - youāre wasting the IRSās time with a form 5471 saying absolutely nothing. (Ok, so maybe youāre paying the power bill. Are you claiming a loss? No? You owe no taxes on a loss, and arenāt offsetting your taxes elsewhere either. Economic zero from the IRS POV.)
Thereās actually a IRS circular on this to the effect of āplease donāt send us unnecessary forms.ā
They canāt say you didnāt disclose it, if you disclosed it on 8938. Thatās what thatās for. 8938 is conveying useful information required by the law - you own this corporation and itās worth X. Donāt file that and your ass is grass too. But you are supposed to report income and losses, $0 is neither. File a 5471 with zeros on it?
So the lawyer, in so many words, basically said āI wouldnāt file it. You disclosed its existence, reporting $0 proves nothing and they told us not to. Oh, and youāre probably worrying too much.ā
In other words, surprisingly, the IRS is ā¦ apparently, reasonable, plus or minus whether the agent youāre dealing with had a bad day or not. There also really is a standard of reasonable-attempt-to-disclose-correctly. Like, if you filed your ForeignLand AirBnB income as Sched E rental income out of not knowing that CFC rules applied, but you filed 8938 so you didnāt hide the corporation either, well, you can show you genuinely tried and paid something approximating correct - you merely incorrectly calculated it. Perhaps significantly so, so Iād want to fix it soon as I know and Iād expect to get hit with something, butā¦ Again IMO, YMMV.
IMHE merely being incorrect is a minor sin. Assuming something is not taxable, whether you should have known better or not, is a mortal sin. Iāve typoed shit on forms before and the IRS has caught it. They send you this form. After you start breathing againā¦ you file the corrections and literally say āoops, I made this mistake because X, sorryā and pay the penalty and interest. They go away. Iāve had their recalculation-on-your-behalf be wrong. You say āuh, yes I was wrong, but you are assuming itās Y not X but hereās document that says itās X+4 so I owe Z not the A you claimed, hereās the check for Z plus calculated penalties and interest on A, sorry bout that.ā They go away. Have I been lucky? Perhaps. shrug Again YMMV. IRS letters scare me still but I have at least gotten over the initial shock.
I think Iāve said this before - reader, the fact that you are here asking these questions and filing forms and reporting the income to the best of your ability is 95% of the battle. Itās the poor suckers who have no idea PFIC exists that are toast.
So to the original point - will it harm you? No, probably not. But is it worth it? Not sure it is.
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With respect to your other questions:
I wonāt know for a while til my accountant gets around to my tax debacle (since I am paying for correct answers rather than face this myself) but I donāt think 5471 or 8865 apply. Nor do I think 926 applies because you are buying and selling shares of a fund, youāre not transferring money to a corporation. These GVs are funds, not corporations, and the header of 8621 itself says Passive Foreign Investment Company not Corporation; a corporation may be a PFIC but not all PFICs are corporations.
Iād note that these funds are registered with CMVM as Fundo de Capital de Risco. Rather explicitly a fund, not a corporation. If it were a corporation, itād be registered with the ministry of business or something with a business ID, not the market regulator. This in and of itself gives you a huge hammer if the IRS were to question whether itās a corporation or not - the Portuguese government says itās not in Big Bold Letters.
I suspect it is really quite straightforward, you file 8621 and pass through the values appropriately to the main forms (sched a/b/d/e/4797/114 as applicable) and thatās it. The trick is interpreting the PFIC form into the right shape.
I do think the $200 spent on one of those PFIC-specialist firms to interpret your PFIC into a 8621 is worth it, and they will answer all the rest of these questions as part of the process, simply because 8621 is a pass-through form so they should tell you where to pass the values through to, since 8621 itself is a touch vague. They probably have standard guidance. It canāt be that complicated if a firm will do it for $200. No I donāt have names, I saw a couple and had one recommended but I canāt remember it.
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any specific firms you recommend for this?
Still canāt remember, sorry. Even then it wouldnāt be a recco from me.
I found a few tax firms that specialize in filing taxes for foreigners living in the US and US citizens living abroad. They seem to do both. I got quotes from a handful of firms. Some were several thousand dollars or only quoted an hourly fee with a minimum, but not maximum. Assuming the fund you invest in provides a proper PFIC annual statement I donāt think itās a ton of work on the preparers end. Two places I think are worth contacting were:
I decided to move forward with online taxman, just uploaded my docs. DM me if youāre interested in a referral code for them.
Has anyone who has invested in Greytech II last year received a PFIC from them? I know that the investment just closed near the very end of last year, but I think to file all of the proper US IRS paperwork, we still need the PFIC even though the fund wasnāt really investing in 2021.
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I think this depends on how clear the document you get is. Trust me, they arenāt all always so clear.
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I reached out to them last month and they responded saying year end documents would be available in the investor portal by mid-March.
re: Greytech II. Has anyone determined at this point, and prior to the release of year end docs. in mid-march, if US citizens need to begin filing 2021 tax returns to indicate a PFIC investment? Or will we defer this until 2022?
Hard to say, without knowing what they will state in their report. I was going to check with my accountant after receiving the docs. Will likely have to file an extension given timing of release.
Thanks for the response, and for checking with them on that. That timing isnāt perfect, but it is good to know it is coming!
I just received an invite from Greytech II for an zoom call on March 17 for US investors that is focused on U.S. Tax Compliance. If you are a Greytech II investor and didnāt receive the invite please contact them.
The discussion includes presentations by a US tax attorney and a US estate and tax planning specialist.
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Thanks for the information about that. I didnāt get that email, so Iāve just written to my contact asking for the link. Iām unfortunately going to be traveling that day, but perhaps they will also record it, or it will be at one of the times I am not in the air!
ETA: My agent at Iberis sent me the link. Thanks for letting me know about it on the forum!
Thanks again for the heads-up on that seminar! I had to miss the presentation itself because I was on a severely delayed flight (I tried with the in-flight wifi, but no luck), but the PDF they sent out afterwards was great. Iām glad I didnāt miss that!
On a separate note, fwiw, I still donāt see my PFIC in my investor portal. Iām hoping they upload that soon, since it would be nice to be done with my tax filing!
They said by end of March. The low down, if you are a US citizen, residing as a resident of the US and investing as an individual (family) in Iberis funds then you need to annually file only 3 forms:
Form 114 (FBAR)
Form 8938 (FATCA)
Form 8621 (PFIC) and doe a QEF election.
Thanks! Thatās what it seemed like from reading through the slides, but Iām glad to get that confirmation. Iāll just keep checking the portal for the PFIC as we get to the end of March.
Bison Bank /IMGA Fund investor. My accountant is saying the āyear endā statement received from Bison doesnāt qualify as a proper PFIC Statement. Looking at the regs (learning more about this than I care to) it does seem like aside from the financial stuff, with Bison being an āintermediaryā under the regulations, the statement is supposed to have some statement that a shareholder shall be permitted to examine the books and records to establish the gains/income/etc are computed in accordance with US income tax principles.
The statement otherwise seems to have the financial particulars to complete the tax forms (and importantly claim QEF) Is anyone else encountering this or are accountants accepting the year end statement as acceptable for PFIC reporting?
No yet, but thanks for the heads up. My fund manager said theyād issue the PFIC directly so you may want to check there. I do need statements for FATCA from Bison and another bank to comply with State Department reporting so what you got is t necessarily redundant.
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