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Hello I wanted to talk to you today about the complex about 30 years ago Congress introduced legislation intended to stop Americans from gaining a tax advantage by investing in non-us investment funds but as we will see the rules go of it we'll grab it further than that so what is a passive foreign investment company well the first thing is that it's a foreign corporation so that means a non-us corporation then there is an income and an asset test the income test says that if you if over 75 percent of your income comes from passive income then you're going to be a passive or investment company the asset test is that if over fifty percent of your assets are passive assets then you'll be regarded as a passive foreign investment company so what is passive income well passive income is things like interest dividends and rents passive assets are assets like cash bank accounts stocks bonds land and most rental assets now there are a few exceptions to those but they're fairly complex and technical the the other the intended victim of the passive foreign investment company legislation really is foreign investment funds and what you're going to find is that if you invest in a non-us investment fund mutual fund investment company something like that it's almost certainly going to be caught by the passive foreign investment company rules other kinds of companies can get caught as well in particular startups could get caught because they've got lots of assets and maybe not very much income or no income so there is an exclusion that can cover those in some circumstances and there is also a an exclusion for so-called controlled foreign corporations that may mean that they are not taxed as acid for an investment company so what's the effect of owning passive foreign investment culture well Congress has given you three options in terms of how they can be taxed the first one I'll deal with is probably the most favorable it's a so-called qef election so what's this about well if you can get certain information from your investment your non US investment fund then you can make the election for it to be treated so qualifying letting fund essentially the effect of this is that you will be taxed as though you owned a u.s. mutual fund the downside of this however is that in practice it's very rare to come across companies that actually are comply with the regulations that I would allow you to make q EF collection so probably this is it this is unlikely to be an option for you second option is the so-called mark-to-market election under this one the taxpayer makes an annual election for the P fit to be mulched the market you recognize annually gains and losses the games are treated as ordinary income rather than capital gains and subject to higher rates than if it were a capital gain and the.