June 22, 1990
TO: ACCOUNTING/TREASURERS COMMITTEE NO. 18-90
TAX COMMITTEE NO. 14-90
RE: PASSIVE FOREIGN INVESTMENT COMPANY (PFIC) SURVEY
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At a June 7, 1990 meeting on international tax issues,
members expressed a desire that the Institute compile a list of
known and suspected passive foreign investment companies
("PFICs"). As the Institute has no capacity to determine whether
identified PFICs are, in fact, PFICs, we will merely collect the
information from members, update it periodically and distribute
it.
Background: A PFIC is defined generally in Internal
Revenue Code section 1296(a) as any foreign corporation if:
1) 75 percent or more of its gross income for the
taxable year is "passive income", or
2) the average percentage of assets (by value) held by
such corporation during the taxable year which
generate "passive income" is at least 50 percent.
The typical effect of holding PFIC stock in a RIC's
portfolio is that a RIC-level tax (that cannot be avoided by
paying out the income as a dividend to the RIC's shareholders) is
incurred when the PFIC makes certain distributions and when the
PFIC stock is sold.
The Institute and others are currently discussing with the
Treasury Department and the Internal Revenue Service possible
mechanisms to avoid causing RICs that invest in PFICs from
incurring a RIC-level tax on these investments.
The Survey: The following questionnaire will help the
Institute prepare the list of PFICs. To ensure maximum
participation, the Institute will not identify the member who
identified each PFIC. Attempts will be made, however, to clarify
an investment's status where differences of opinion arise.
In addition, the Institute is requesting information
regarding elections to classify PFICs as "qualified electing
funds" ("QEFs"). The questions are in response to an Internal
Revenue Service request for information regarding the usefulness
of QEF elections to investment companies.
Please return the survey to me by July 16, 1990 so that the
information can be distributed to members promptly. If you have
any questions regarding PFICs or this survey, please call me at
(202) 955-3521.
David J. Mangefrida, Jr.
Assistant General Counsel
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