Can someone please explain to me PFICs (Passive Foreign Investment Company)? Tax implications for Canadian ETFs?

Thanks for explaining. So does this mean I need to fill out a separate form for each Canadian ETF I own? And what happens if I didn't know about this and haven't been reporting them for the last couple years?

Yes, you'll need to file Form 8621 (Information Return by a Shareholder of a PFIC) for each separate PFIC you own. It's one of the more complex IRS forms and can take several hours per fund to complete. If you haven't reported them in previous years, you should consider filing amended returns. The IRS takes PFIC reporting seriously, and penalties can be substantial. Look into the Streamlined Filing Compliance Procedures if you weren't aware of your filing obligations - it can help minimize penalties if you voluntarily come into compliance.

Can it handle multiple years if I need to file those amended returns the other commenter mentioned? I've had these Canadian ETFs for about 4 years since moving to the US.

I'm skeptical about online tools handling something as complex as PFIC reporting. Does it actually work for QEF elections or just the basic reporting? I tried using TurboTax for my PFICs and it was a disaster.

Yes, it can handle multiple years for amended returns. You just need to upload your statements for each year and it tracks the calculations across tax years which is crucial for the interest charge calculations if you're using the default method. It absolutely works for QEF elections too, not just basic reporting. I was also skeptical after my TurboTax nightmare but this is specifically designed for international tax situations. It handles the annual ordinary earnings and net capital gain calculations required for QEF and even helps determine if your fund provides the necessary information for a QEF election in the first place.

Wait, how does this actually work? Do they have some special connection to the IRS or something? I've been trying to get through about my PFICs for weeks.

This sounds like BS. No way someone can magically get you through to the IRS when millions of people can't get through. I've been trying for 3 weeks to talk to someone about my PFICs and nothing works.

They use an automated system that continuously redials and navigates the IRS phone tree until it gets through, then it calls you back and connects you. No special connection - just technology that handles the frustrating part. I was skeptical too! But their system just does the redial and wait process that none of us have time for. The IRS is actually adding more staff this year, but the wait times are still ridiculous. For something as complex as PFICs, you really need to talk to a human sometimes, and this was the only way I found to actually make that happen.

Wouldn't selling trigger that punitive tax rate the first poster mentioned though? Wouldn't that be worse than just dealing with the annual reporting?

Yes, selling will trigger the tax event at potentially the highest rate plus interest charges if you're using the default PFIC method. However, it's a one-time pain versus ongoing compliance costs and headaches. If you can make a QEF election for the current year before selling, that might reduce the tax impact somewhat. Or if you've only held them for a short time, the interest charges might not be too severe. I did the math and realized that even with the higher tax rate on selling, the amount I'd save in accounting fees over the next decade made it worthwhile to just take the hit and simplify my life.

I use MTM for my Australian ETFs. You can only make the election on a timely filed return for the year, and once you make it, you're stuck with it. The upside is you report gains/losses annually as ordinary income (no special PFIC tax rates). The downside is you can't claim losses beyond your gains from other MTM PFICs. It's way less complicated than the default method though.