Yes. Back in the 1970s, there was significant lobbying of Congress by Wall Street to keep US taxpayers invested through US brokers/markets. Congress passed a set of rules that made some foreign investments “tax toxic” in the hands of US taxpayers. This regime is called the “PFIC” regime – Internal Revenue Codes 1291-1298. Every foreign jurisdiction has their version of what constitutes a PFIC.
We have worked with many clients to help them understand their PFIC liability, file their PFICs on IRS Form(s) 8621, and plan on how to properly divest themselves of these assets.
While some wealth advisors may have heard of PFICs, many are unaware that other assets held by their clients may also result in big headaches.
Common problem investments include:
- Foreign life insurance
- Pensions earned from foreign employers (even if your client isn’t currently taking distributions)
- Individual retirement accounts held abroad (ISAs, Superannuation funds, etc.)
- Mutual funds held overseas
Being able to explain to your clients why these investments are problematic can help increase your value as an advisor. It can also spur clients to divest of those assets and move those funds to your care.