A passive foreign investment company is a foreign corporation whose income or assets are mostly passive, which includes most foreign mutual funds and ETFs, and U.S. shareholders face punitive tax rules and Form 8621 filings unless they make an election.
Under the default rules, distributions and gains are taxed at the highest ordinary rate with an interest charge. A qualified electing fund or mark-to-market election avoids this but must be made timely.
Why it matters: an ordinary foreign brokerage account can hold a dozen PFICs, each with its own form. See Form 8621.
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