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Mark-to-Market Method The mark-to-market method allows an owner of PFIC shares to make an election for the year in which the fund is obtained to mark gains to market at each year-end – i.e. pay tax on the difference between the fair market value of the fund at the beginning and end of the year. Similar to the “Excess Distribu-


tion” method, gains and losses are considered as ordinary gains and losses, not capital.


Qualified Electing Fund Method This election is not usually available to people who just have non-US funds or stocks and shares ISAs as the election is made on an investor- by-investor basis and can only be filed by the first US person that is a direct or indirect shareholder in the


PFIC. Given that you cannot be cer- tain that you are the first American in the fund you cannot make this election. If it can ever be made, it allows


the PFIC to be treated as a US based mutual fund such that any income or capital gains earned by the PFIC would be recognized currently by the US shareholder. Income recog- nized is picked up as ordinary, while capital gains are classified as long term. Losses generated by the PFIC cannot be passed through to the US shareholder. A US investor increases his or her basis in the QEF’s stock for any income inclusions and reduces his or her basis in the stock upon receipt of distributions of previously taxed income so there are no double tax issues.


Conclusion As you can see being invested in funds or a stocks and shares ISA can potentially have severe US tax conse- quences but there are ways to miti- gate the liability and we can assist you in this process.


Phil Hawkins is Senior Manager at Tax Advisory Partnership 14 Devonshire Square, London, EC2M 4TY. T. 020 7655 6959 www.taxadvisorypartnership.com


Tax Advisory Partnership provides a broad range of UK and US tax services to private clients both in the UK and abroad. Please contact us at +44 207 655 6959 for an initial consultation or email info@tap-london.com and we will contact you at the earliest opportunity.


Wishing a very Happy New Year to all readers of The American


London t: +44 (0)20 7655 6959 e: info@tap-london.com


Leeds


t: +44 (0)113 8272 410 e: info@tap-leeds.com


www.taxadvisorypartnership.com


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