This is Part 6 of a focused guide on PFICs, Form 8621, and U.S. tax traps for global investors.
Part 1 . Part 2 . Part 3 . Part 4 . Part 5 . Part 6 . Part 7 . Part 8
If this applies to you or someone you know - subscribe to get the rest of the series - before the IRS catches up.
Overview
Most PFIC trouble starts with innocent mistakes: missed forms, misunderstood fund types, or incorrect assumptions. Unfortunately, the IRS doesn’t treat them as innocent. Some mistakes can be fixed, others can only be managed going forward.
This article highlights the most common PFIC pitfalls and what you can do if you’ve already made one.
Mistake #1: Not Realizing You Owned a PFIC
Many people assume:
“It’s a mutual fund from my home country, not a tax issue”
“It’s in a foreign retirement account, so it must be exempt”
“I’m not a citizen, so these rules don’t apply yet”
Reality: If you are a U.S. tax resident (even on a visa), own a non-U.S. mutual fund or ETF, and haven’t filed Form 8621, you may be exposed.
Mistake #2: Failing to File Form 8621
Form 8621 is required every year you hold a PFIC—even if there’s no income, dividend, or sale. Missing it:
Keeps your entire tax return “open” to audit
Triggers issues with IRS data-matching (especially under FATCA)
Fix:
File the missing forms as soon as you discover the issue
Work with a CPA to catch up correctly
Mistake #3: Selling Before Making an Election
Once you sell, it’s too late to escape Section 1291. You’re stuck with:
Backdated tax at top marginal rates
IRS interest on each year’s portion of gain
Zero ability to use capital losses to offset
Fix: None retroactively. Best you can do is make a Mark-to-Market election on remaining PFICs going forward.
Mistake #4: Assuming Foreign Tax Paid Will Protect You
Even if you paid tax in another country on the same income:
PFIC rules often make you ineligible for foreign tax credits
You could still be taxed again in the U.S. without offset
Fix:
Don’t assume a treaty will cover you—verify with a PFIC-savvy CPA
Consider restructuring the investment going forward
Mistake #5: Using a Generalist CPA or DIY Approach
Most accountants—even competent ones—are not trained in PFIC compliance. DIY tax software often skips Form 8621 entirely.
Fix:
Seek a tax professional with specific experience in PFICs
Look for someone who works with expats or international clients
Can You Fix Past Mistakes?
Some mistakes can be corrected:
Missed 8621s: You may file them late, especially if you haven’t been contacted by the IRS yet
Multiple years of non-filing: Consider the Streamlined Foreign Offshore Procedures or Domestic Offshore Procedures, depending on your situation
But others (like selling before making an election) are final.
When to Consider Disclosure Programs
If you:
Failed to report PFICs for multiple years
Had significant unreported income
Are worried the IRS may already have data on you (e.g., FATCA disclosures)
…you may want to consider voluntary disclosure options to minimize penalties. A tax attorney can help evaluate this.
What To Do Right Now
✅ Audit your portfolio: Any foreign mutual funds or ETFs?
✅ Check past tax returns: Was Form 8621 filed?
✅ Identify any sales or distributions from foreign funds
✅ Get professional help before trying to “fix” anything
✅ Act before the IRS contacts you—your options shrink afterward
This is Part 6 of a focused guide on PFICs, Form 8621, and U.S. tax traps for global investors.
Part 1 . Part 2 . Part 3 . Part 4 . Part 5 . Part 6 . Part 7 . Part 8
If this applies to you or someone you know - subscribe to get the rest of the series - before the IRS catches up.