[2] The original provisions applied for all foreign corporations meeting either an income or an asset test.
This regime is as follows: First, such income or gain (in excess of the 125%) is allocated pro rata to each year of the person's holding period for the particular shares.
Shareholders of a PFIC (including a QEF) are eligible for foreign tax credit with respect to the current and deemed prior year taxes, including the deemed paid credit for 10% corporate shareholders of the PFIC.
QEF status fully avoids the tax and interest regime only if it is effective from the beginning of the share's holding period.
In each case, the gain or deemed dividend recognized under the election is subject to the tax and interest regime.
Losses generate ordinary income deductions to the extent they reverse prior gains, on a share-by-share basis, after which they are claimed on US schedule D. Such election is available only for shares the market value of which is readily determinable (e.g., regularly traded shares).
for example: If stock X was purchased in 2007 for $100, has a FMV on December 31, 2011, of $120, and no PFIC forms were filed until 2011 (when Sect 1296- Mark-to-market- election was made), no PFIC filings would be needed for the prior years as long as distributions were less than 125% and no capital gains occurred.
[12] Each U.S. person owning shares of a PFIC is required to file IRS Form 8621.
Failure to file such form in a year in which no income is properly reported does not carry specific penalties, but may render the return incomplete and potentially subject to tolling of the statute of limitations.