PFIC
by i963208 | April 12, 2012 7:29 pm
Travis, This question is in regards to Sandstorm Gold. I don’t understand exactly what a PFIC is. Am I responsible for taxes on money that I have not even seen yet. Please explain or direct me to a website that explains this concept more clearly. I have quite a few shares and don’t want to be caught off guard with a huge tax bill.
Source URL: https://www.stockgumshoe.com/2012/04/microblog-pfic/
PFIC’s are Passive Foreign Investment Companies — the reporting and tax requirements were set up to prevent passive pass-through foreign corporations that folks used as tax shelters, but they also get applied to foreign mutual funds and some REITs and royalty-type foreign companies. Many companies with US investors declare their PFIC status, making a declaration of their opinion based on their understanding of IRS rules, but it’s apparently very complex and the specific measures are subject to some interpretation. Franco-Nevada, for example, declared that yes, they were a PFIC last year but that they do not expect to be one this year. International Royalty did consider themselves to be a PFIC before they were taken over by Royal Gold.
Sandstorm, however, has said in the past that they’re NOT going to make such a determination. I hope that will change, particularly if and when they get a US listing in the future and have to pay more attention to the needs of US investors.
PFIC holdings, in my understanding, require making a decision about how to report and filing reports, either a variation of pass-through income to take account of the income Sandstorm makes in the year, or a mark-to-market approach that basically seems to tax you on the annual movement in shares of the stock (ie, creating a taxable gain from a paper gain, even if you don’t sell). I have never filed PFIC forms and I’m not an accountant, I’ve tried to read up on this recently because folks ask me about it quite a bit, but I really can’t give any guidance for fear of providing bad information (IRS agents, I expect, must also find PFIC rules confusing).
Here are the basic IRS instructions for the form:
http://www.irs.gov/instructions/i8621/ch01.html
And I don’t know of the wikipedia page on this is accurate, but it is fairly clear:
http://en.wikipedia.org/wiki/Passive_foreign_investment_company