TAG Tax

Contact: Ray Polantz, Cohen & Company (Ohio, USA)

"Invest in tax-free offshore funds!" Sounds great, right?

Each year, many U.S. investors fall for these familiar sales pitches. Other investors are simply looking to diversify risk by investing in offshore opportunities. Still others have immigrated to the U.S. and have retained some investments from their home country. In all of these cases, it is important to be aware of the Passive Foreign Investment (PFIC) rules and the tax considerations associated with these investment vehicles.

A PFIC is a foreign corporation that meets either an asset test (at least 50% of the foreign corporation's assets are passive assets) or an income test (at least 75% of gross income is passive). In the investment world many foreign pooled investment funds, such as mutual funds and foreign hedge funds, are considered PFICs.

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