IRS PFIC rules

IRS PFIC rules



Do you own Foreign Mutual Funds? I got some bad news --- you have some horribly expensive accounting work to do for the IRS. , I can’t say what the cleaned-up “official” reason is, but I can tell you what the real reason is: Protectionism.  PFIC language was snuck into  Section 1291 of the Tax Reform Act of 1986 as a protectionist measure for the the US-based mutual fund industry (sorry Reagan fanboys — or maybe we can blame this on his Democrat rival Tip O’Neil?) . Entrenched Wall Street interests hated the fact that offshore mutual funds had a strategic advantage over domestic funds, with lower costs and higher returns, as foreign funds do not have to jump through the (editorial content warning) expensive, asinine hoops of the Securities and Exchange Commission (SEC). So instead of getting rid of the SEC (and all those federal jobs), Congress decided to intentionally make Foreign Mutual Funds less attractive by requiring expensive, mind-bloggling PFIC accounting. So everyone wins, the person who like to invest overseas.