How to correctly complete Form 8621 for PFIC using mark-to-market election - need advice on calculation example

Thanks for confirming my basic approach! I completely forgot about currency conversion - that's a critical step. Would I use the exchange rate on each purchase date for the basis calculation, and then the December 31 exchange rate for the year-end valuation? Also, I've heard people mention Section 1291 and excess distributions. Do I need to worry about those with the mark-to-market election, or does that election essentially bypass those complications?

You would use the exchange rate on each purchase date for calculating your basis in USD, and yes, the December 31 exchange rate for the year-end valuation. The IRS generally accepts published exchange rates from reliable sources like the Treasury Department or financial publications. The mark-to-market election is specifically valuable because it allows you to avoid the complex excess distribution calculations under Section 1291. Once you make a valid mark-to-market election, you're no longer subject to the punitive Section 1291 regime. That's why many investors with PFICs prefer this method when available - it's more straightforward and generally results in less administrative burden, though not necessarily lower taxes in all situations.

Thanks for confirming my basic approach! I completely forgot about currency conversion - that's a

Does the taxr.ai system actually work with foreign currency PFICs? My accountant told me there's no automated solution for this and I'd need to manually track everything. I have investments in 3 different currencies and the thought of doing all these calculations manually is giving me anxiety.

I'm a bit skeptical about these online tools. How does it handle the mark-to-market vs QEF election decision? Does it just do the calculations or does it also help you determine which election makes more sense for your specific situation? I'm trying to decide between them for my German ETFs.

Yes, the system handles multiple currencies automatically. You just enter the purchase information in the original currency and it applies the correct exchange rates based on the transaction dates. It saved me from creating those massive spreadsheets tracking daily exchange rates my accountant was asking for. The system analyzes your specific PFIC investments and provides recommendations about which election might be more beneficial in your situation. It compares the tax impact of mark-to-market versus QEF elections when both are available, and it explains the pros and cons of each approach for your specific holdings. For my German funds, it recommended mark-to-market since getting the QEF information wasn't practical, but for some Canadian funds I hold, it suggested different treatment.

How does Claimyr actually work? Do they just call the IRS for you? I'm confused about how they're getting through when nobody else can. The IRS phone lines have been impossible to reach for months.

I'm skeptical this actually works. The IRS is notoriously difficult to reach, and even when you do get through, finding someone who actually understands complex international tax issues like PFICs is nearly impossible. Are you sure you weren't just talking to their own tax advisors rather than actual IRS agents?

They use a technology that navigates the IRS phone system and holds your place in line. You only get connected once they've reached an actual IRS agent. You're literally talking directly to IRS employees, not third-party advisors. The service is pretty straightforward - you provide your phone number, they call the IRS and navigate the menu system, and when they reach an agent, they connect you. I was able to ask specific questions about Form 8621 line items and got definitive answers from an IRS international tax specialist. The agent even referenced specific IRS internal guidance documents when answering my questions, which confirmed they were the real deal.

Which states have different PFIC treatment? I'm in Massachusetts and my tax preparer never mentioned this could be an issue. Do you know specifically how MA handles PFIC income?

States that don't fully conform to the federal tax code can have different treatments. New York, California, and Massachusetts have been known to have some differences in international tax treatments in certain situations. Massachusetts specifically starts with federal adjusted gross income on the state return, so the PFIC income will generally flow through, but they have some specific modifications for certain types of foreign income. I'm not a Massachusetts tax expert, but I recommend checking with a state-specific tax professional. The key is to ask specifically about state-level treatment of mark-to-market PFIC income, as many general tax preparers overlook these nuances unless they specialize in international taxation.

What software did you use to track the basis adjustments year after year? I'm using TurboTax and it doesn't seem to have a good way to handle this.

I've been dealing with this exact issue! TurboTax really isn't designed for PFIC reporting. I ended up creating a simple Excel spreadsheet to track my basis adjustments year-over-year. Each year after making the mark-to-market election, I update my basis to the prior year's December 31st FMV. So for 2025, my starting basis would be the €91.45 per share (converted to USD) that was reported as the 2024 year-end value. For software, I actually switched to using the taxr.ai tool that Sean mentioned earlier in this thread. It automatically carries forward the adjusted basis from year to year, which eliminates the manual tracking headache. The system remembers your prior year elections and basis adjustments, so you don't have to recreate everything each tax season.

This is really helpful, especially the point about dividend reporting! I hadn't considered that dividends from VWRL would need to be reported separately on Schedule B. Are these dividends subject to the same PFIC rules, or are they treated as regular foreign dividends for tax purposes? Also, regarding documentation - do you recommend keeping screenshots of the exchange rates from treasury.gov, or is it sufficient to just note the rates and source in a spreadsheet? I want to make sure I have adequate backup if the IRS ever questions my conversions. One more question: if I have small fractional shares from dividend reinvestment during the year, do those need to be tracked separately for the mark-to-market calculation, or can I just use my total share count at year-end?

Great questions! Let me address each one: **Dividends**: PFIC dividends are still subject to PFIC rules, but with the mark-to-market election, they're generally treated more like regular foreign dividends for practical purposes. You'll report them on Schedule B as foreign dividend income. The key advantage is that you avoid the punitive excess distribution calculations that would apply under the default PFIC regime. **Documentation**: I strongly recommend taking screenshots or printing PDFs of the exchange rates from treasury.gov with the date visible. A simple spreadsheet notation might not be sufficient during an audit. The IRS likes to see the actual source documentation, especially for currency conversions which can significantly impact tax liability. **Fractional shares**: You should definitely include fractional shares in your year-end total count for the mark-to-market calculation. Any dividend reinvestment during the year increases your share count and adjusted basis. For the FMV calculation, use your complete share position as of December 31 (including fractional shares) multiplied by the year-end price. For the dividend reinvestments, make sure to track the purchase price and date for each reinvestment - these will be added to your adjusted basis calculation just like your manual purchases. The fractional shares from reinvestment are treated the same way as whole shares for PFIC reporting purposes. Pro tip: Most brokers provide detailed statements showing exact share counts including fractional shares, which makes this tracking much easier.

This is incredibly helpful advice, especially about using the Federal Reserve as a backup source for exchange rates! I hadn't thought about the possibility that Treasury might not have rates for specific dates. Your point about the "deemed sale" election is really important too. So even though I held my April shares for over 8 months, all the gains get treated as ordinary income rather than long-term capital gains? I want to make sure I understand this correctly - the mark-to-market election essentially overrides the normal holding period rules for capital gains treatment? Also, regarding timing of contributions - that's a great tip about making purchases early in the tax year. I was actually thinking of setting up monthly automatic investments, but now I'm wondering if that would create a nightmare for tracking all the different purchase dates and exchange rates throughout the year. Have you found a good system for handling frequent small purchases, or do you recommend sticking to less frequent, larger investments to keep the record-keeping manageable? One more question: you mentioned this works well for VWRL because it's highly liquid - are there any red flags I should watch for with other European ETFs that might make the mark-to-market election more problematic?

Exactly right on the ordinary income treatment! The mark-to-market election completely overrides normal capital gains holding periods. All mark-to-market gains and losses are treated as ordinary income/deductions, regardless of how long you've held the shares. This is one of the trade-offs - you get simpler reporting but lose preferential capital gains rates. For frequent purchases, I actually do monthly investments and have found a system that works. I use a simple spreadsheet with columns for date, shares purchased, EUR price, exchange rate, and USD basis. At year-end, I just sum up all the USD basis amounts and multiply total shares by the December 31 FMV. The key is staying disciplined about recording each transaction immediately - don't let them pile up! Many brokers now provide year-end statements that include currency conversions, which can be a huge time-saver. Check if your broker offers this service. Regarding red flags for other European ETFs: - **Thinly traded funds**: If there's no reliable December 31 pricing, mark-to-market becomes problematic - **Funds that don't trade on qualified exchanges**: These won't qualify for mark-to-market election at all - **Complex fund structures**: Some European funds have unusual share classes or distribution mechanisms that complicate PFIC analysis - **New funds**: Funds with limited trading history might not have established qualifying exchange status VWRL is actually ideal because it trades on multiple major exchanges with consistent pricing. Stick with well-established, high-volume ETFs from major providers like Vanguard, iShares, or SPDR for the smoothest PFIC reporting experience.

Thanks for the comprehensive breakdown, Miguel! This really helps confirm I'm on the right track. I appreciate you highlighting the documentation aspect - I'll definitely start taking screenshots of the Treasury exchange rates. One follow-up question: you mentioned that dividend reinvestments adjust both share count and basis. For VWRL specifically, if dividends are automatically reinvested during the year, do I need to treat each reinvestment as a separate "purchase" for basis calculation purposes? Or can I somehow aggregate them? Also, I'm curious about the timing of making the mark-to-market election. Do I make this election when I file my 2024 return (so it applies retroactively to 2024), or should I have made it earlier in 2024? I want to make sure I'm not missing any deadlines or procedural requirements. Your point about VWRL being a good choice is reassuring. I specifically chose it because it seemed like one of the more straightforward options, but PFIC reporting still felt overwhelming until I started working through this example. The mark-to-market election really does seem much simpler than the alternatives!

Great questions! Let me address both: **Dividend reinvestments**: Yes, treat each dividend reinvestment as a separate purchase for basis calculation purposes. Each reinvestment has its own date, share price, and exchange rate that needs to be tracked individually. You can't aggregate them because the exchange rates and EUR share prices will be different for each reinvestment date. Most brokers provide detailed statements showing each reinvestment transaction with the exact date, shares acquired, and price per share, which makes this tracking much easier. **Election timing**: The mark-to-market election is made on your 2024 tax return when you file it (typically by April 15, 2025, or October 15 with extension). The election applies retroactively to the entire 2024 tax year, so you don't need to have made it earlier in 2024. This is actually one of the convenient aspects of the election - you can evaluate your year-end position and decide whether mark-to-market makes sense before committing to it. However, remember that once you make the election, it's irrevocable without IRS consent, so make sure you're comfortable with this approach long-term. You're absolutely right that mark-to-market is much simpler than the alternatives! The default PFIC rules with excess distribution calculations are truly complex. Your systematic approach to working through the example shows you've got a good handle on this. Just stay disciplined with the record-keeping throughout the year and you'll be in great shape.

This is excellent practical advice, Maya! The quarterly tracking tip is especially smart - I hadn't thought about monitoring the position throughout the year to anticipate tax liability. That could really help with cash flow planning since mark-to-market gains are taxed as ordinary income. Your point about VWRL having reliable pricing is reassuring. I was worried about potential complications around European holidays or market closures, but it sounds like the major exchanges provide consistent year-end pricing data. Quick question about the state tax consideration you mentioned: I'm in Texas (no state income tax), so I assume this won't be an issue for me. But for future reference, what kinds of state-level complications have you seen with PFIC reporting? Are there states that don't follow the federal mark-to-market election or treat the income differently? Also, regarding the quarterly FMV tracking - do you just note the December 31 values for your own planning purposes, or do you actually need to report quarterly values anywhere on the tax forms? I want to make sure I'm not missing any additional reporting requirements beyond the annual Form 8621. Thanks for confirming my calculation approach - it's reassuring to hear from someone who's navigated this successfully across multiple years!

This is such a helpful thread for someone just starting with PFIC reporting! Nia, your point about creating a master tracking document from the beginning is spot on. I'm actually in a similar situation to Diego with European ETF investments and have been putting off dealing with the PFIC requirements because they seemed so intimidating. Reading through this discussion, it sounds like the mark-to-market election really is the way to go for liquid ETFs like VWRL. The idea of avoiding those excess distribution calculations alone makes it worth it. One question I have - for someone who already has PFIC investments from prior years but never filed the proper forms, is it possible to make the mark-to-market election going forward, or do you need to somehow address the prior years first? I'm worried I may have created a bigger mess by not filing 8621 forms in previous years. Also, does anyone know if there are penalties for late PFIC reporting, and if so, how severe they typically are? I'm trying to decide whether to tackle this myself or just bite the bullet and pay for professional help to clean up any prior year issues.