On December 28, 2016, the Treasury issued final regulations (T.D. 9806) that primarily address passive foreign investment company (PFIC) ownership and reporting rules and largely adopt 2013 proposed (REG-140974-11) and temporary (T.D. 9650) PFIC regulations and implement two notices (Notice 2014-28 and Notice 2014-51).

Background -

A foreign corporation is a PFIC if either 75% or more of its gross income for a taxable year is passive or 50% or more of its assets held during a taxable year produce, or are held for the production of, passive income. Three general tax regimes apply to U.S. shareholders of a PFIC. For certain PFICs, a shareholder can elect to annually mark its shares to market and include any appreciation in the value of the stock (as well as any gain on the actual disposition of the stock) as ordinary income. A shareholder can instead elect to treat the PFIC as a qualified electing fund and include its share of the PFIC’s earnings and profits in income as it is earned by the corporation. If no election is made, the shareholder will be subject to tax at maximum applicable rates, plus an interest charge, upon “excess distributions” by the PFIC (or dispositions of PFIC stock treated as excess distributions).