List of companies that are PFICs?

[Rainier]

Does anyone know of a list of companies that are PFICs? I like EXOR and Fairfax India. As I was researching them I learned that they may be PFICs and the tax headache that can cause.

 

So, I was wondering if anyone knows whether there is some type of resource that lists public companies that qualify as PFICs?

 

 

Edited May 2, 2025 by Rainier

[John Hjorth]

This is an awesome idea for a separate topic, @Rainier,

 

Information sharing, with the intent to stay out of otherwise surprising trouble! [... After which I'm out of the topic, because of no relevance for me as a Dane].

[valueventures]

I thought I had read somewhere that PNP.TO and ELF.TO are PFICs. Could someone please confirm / refute? Thanks!

[TwoCitiesCapital]

I believe Pershing Square's vehicle is too IIRC

 

As an aside, this status doesn't matter inside a tax deferred account like an IRA. Is only taxable accounts in the US that can become problematic. 

[Rainier]

4 hours ago, TwoCitiesCapital said:

I believe Pershing Square's vehicle is too IIRC

 

As an aside, this status doesn't matter inside a tax deferred account like an IRA. Is only taxable accounts in the US that can become problematic. 

Understood on the taxable versus tax-advantaged accounts. I just don’t want to mistakenly buy something in a taxable account and end up with a problem. 

[sleepydragon]

16 hours ago, TwoCitiesCapital said:

I believe Pershing Square's vehicle is too IIRC

 

As an aside, this status doesn't matter inside a tax deferred account like an IRA. Is only taxable accounts in the US that can become problematic. 

my thought it actually can matter if you have too much. There's a threshold value, if exceeded , the entire IRA become taxable.. it's therefore called "IRA bomb". I think I read about this a few years back, so I am not sure about this.

[thepupil]

2 minutes ago, sleepydragon said:

my thought it actually can matter if you have too much. There's a threshold value, if exceeded , the entire IRA become taxable.. it's therefore called "IRA bomb". I think I read about this a few years back, so I am not sure about this.

 

can you point me to this "threshold". this would be (very bad) news to me. 

 

https://www.irs.gov/instructions/i8621

Quote

However, a U.S. person that owns stock of a PFIC through a tax-exempt organization or account described in the list below is not treated as a shareholder of the PFIC.

• An organization or an account that is exempt from tax under section 501(a) because it is described in section 501(c), 501(d), or 401(a).

• A state college or university described in section 511(a)(2)(B).

• A plan described in section 403(b) or 457(b).

• An individual retirement plan or annuity as defined in section 7701(a)(37).

• A qualified tuition program described in section 529 or 530.

• A qualified ABLE program described in section 529A.

 

[sleepydragon]

39 minutes ago, thepupil said:

 

can you point me to this "threshold". this would be (very bad) news to me. 

 

https://www.irs.gov/instructions/i8621

 

It's actually K1, not PFIC specifically. But PFIC will issue K1? This is the answer I got from Google about "tax bomb":

---

 

A K-1 received in a retirement account, especially an IRA, can potentially lead to unexpected tax consequences, sometimes referred to as a "tax bomb". This occurs because certain types of income reported on a K-1, particularly Unrelated Business Taxable Income (UBTI), can be subject to tax within the IRA, even if the IRA itself is tax-exempt. [1, 2, 3, 4, 5, 6] 

 

Here's a more detailed explanation: 

 

Why K-1s can be problematic in retirement accounts: [6] 

• UBTI: Unrelated Business Taxable Income (UBTI) is income earned by a tax-exempt entity (like an IRA) from an active business. If an IRA invests in an unincorporated business (like a gas station, grocery store, etc.), the net income generated can be subject to UBTI. [6] 
• Taxable Even in Tax-Deferred Accounts: While traditional IRAs and 401(k)s offer tax-deferred growth, UBTI earned within them is not tax-deferred. It's taxed at the same rate as ordinary income, potentially increasing the overall tax burden in retirement. [1, 2, 3] 
• Schedule K-1: A Schedule K-1 is a form that partnerships use to report a partner's share of partnership income, deductions, and credits to the IRS. It also reports this information to each partner. If an IRA holds a partnership interest, it will receive a K-1. [1, 7] 
• Taxable Events: If an IRA holds an investment where the gross UBTI exceeds $1,000, the IRA may be subject to the UBIT. [5] 

Roth Conversions as a Solution: [2] 

• Roth Conversions: Converting traditional IRAs or 401(k)s to Roth IRAs can help mitigate the tax bomb. While you'll pay taxes on the conversion, your future withdrawals from the Roth account will be tax-free. 
• Tax-Free Growth: Roth IRAs offer tax-free growth on investments, making them a valuable option for managing future retirement income. [2] 

Consult a Financial Advisor: [4] 

• Personal Circumstances: The specific impact of a K-1 on your retirement account depends on your individual situation and the type of investments within your account. 
• Expert Advice: Consulting with a qualified financial advisor is recommended to understand the potential tax consequences and develop a strategy for minimizing them. [4] 

In summary, while K-1s are a common part of investing, particularly in partnerships, they can pose a significant tax challenge when held within retirement accounts. Understanding the implications of UBTI and considering strategies like Roth conversions can help prevent the "tax bomb" from exploding in your retirement years. [1, 2, 3, 6] 

 

Generative AI is experimental.

[1] https://www.irafinancial.com/blog/what-is-a-k-1-and-how-does-it-affect-my-ira/

[2] https://www.ubs.com/global/en/wealthmanagement/insights/marketnews/article.1662351.html

[3] https://seniorplanet.org/articles-the-retirement-savings-tax-bomb/

[4] https://irahelp.com/forum-post/16416-k-1-income-within-ira/

[5] https://www.retirementwatch.com/yes-ira-taxed-even-roth-ira/

[6] https://www.madisontrust.com/selfdirected-ira/rules/ubit/

[7] https://www.taxact.com/support/1606/schedule-k-1-form-1065-part-ii-issued-to-ira

 

 

---------

[73 Reds]

14 minutes ago, sleepydragon said:

It's actually K1, not PFIC specifically. But PFIC will issue K1? This is the answer I got from Google about "tax bomb":

---

 

 

A K-1 received in a retirement account, especially an IRA, can potentially lead to unexpected tax consequences, sometimes referred to as a "tax bomb". This occurs because certain types of income reported on a K-1, particularly Unrelated Business Taxable Income (UBTI), can be subject to tax within the IRA, even if the IRA itself is tax-exempt. [1, 2, 3, 4, 5, 6] 

 

Here's a more detailed explanation: 

 

Why K-1s can be problematic in retirement accounts: [6] 

• UBTI: Unrelated Business Taxable Income (UBTI) is income earned by a tax-exempt entity (like an IRA) from an active business. If an IRA invests in an unincorporated business (like a gas station, grocery store, etc.), the net income generated can be subject to UBTI. [6] 
• Taxable Even in Tax-Deferred Accounts: While traditional IRAs and 401(k)s offer tax-deferred growth, UBTI earned within them is not tax-deferred. It's taxed at the same rate as ordinary income, potentially increasing the overall tax burden in retirement. [1, 2, 3] 
• Schedule K-1: A Schedule K-1 is a form that partnerships use to report a partner's share of partnership income, deductions, and credits to the IRS. It also reports this information to each partner. If an IRA holds a partnership interest, it will receive a K-1. [1, 7] 
• Taxable Events: If an IRA holds an investment where the gross UBTI exceeds $1,000, the IRA may be subject to the UBIT. [5] 

Roth Conversions as a Solution: [2] 

• Roth Conversions: Converting traditional IRAs or 401(k)s to Roth IRAs can help mitigate the tax bomb. While you'll pay taxes on the conversion, your future withdrawals from the Roth account will be tax-free. 
• Tax-Free Growth: Roth IRAs offer tax-free growth on investments, making them a valuable option for managing future retirement income. [2] 

Consult a Financial Advisor: [4] 

• Personal Circumstances: The specific impact of a K-1 on your retirement account depends on your individual situation and the type of investments within your account. 
• Expert Advice: Consulting with a qualified financial advisor is recommended to understand the potential tax consequences and develop a strategy for minimizing them. [4] 

In summary, while K-1s are a common part of investing, particularly in partnerships, they can pose a significant tax challenge when held within retirement accounts. Understanding the implications of UBTI and considering strategies like Roth conversions can help prevent the "tax bomb" from exploding in your retirement years. [1, 2, 3, 6] 

 

Generative AI is experimental.

[1] https://www.irafinancial.com/blog/what-is-a-k-1-and-how-does-it-affect-my-ira/

[2] https://www.ubs.com/global/en/wealthmanagement/insights/marketnews/article.1662351.html

[3] https://seniorplanet.org/articles-the-retirement-savings-tax-bomb/

[4] https://irahelp.com/forum-post/16416-k-1-income-within-ira/

[5] https://www.retirementwatch.com/yes-ira-taxed-even-roth-ira/

[6] https://www.madisontrust.com/selfdirected-ira/rules/ubit/

[7] https://www.taxact.com/support/1606/schedule-k-1-form-1065-part-ii-issued-to-ira

 

 

---------

I'm no expert but this post leaves me scratching my head just a bit.  My understanding is UBI (unrelated business income) is income generated by a tax-exempt organization that is not related to its primary business.  Generally a tax exempt organization is a charitable organization, or 501(c) non-profit organization.  No one "owns" a non-profit organization so it can't be owned in an IRA.  Also, IRAs are not tax exempt; they are tax-deferred and they have no distinct purpose other than to generate wealth for their owners.  How is any for-profit endeavor unrelated to the primary purpose of an IRA? 

Edited May 2, 2025 by 73 Reds
spelling

[thepupil]

45 minutes ago, 73 Reds said:

I'm no expert but this post leaves me scratching my head just a bit.  My understanding is UBI (unrelated business income) is income generated by a tax-exempt organization that is not related to its primary business.  Generally a tax exempt organization is a charitable organization, or 501(c) non-profit organization.  No one "owns" a non-profit organization so it can't be owned in an IRA.  Also, IRAs are not tax exempt; they are tax-deferred and they have no distinct purpose other than to generate wealth for their owners.  How is any for-profit endeavor unrelated to the primary purpose of an IRA? 

 

this is actually very common. it's why for example, non-profits invest in the offshore versions of hedge funds (the cayman blocker corp shields the LP from UBTI). 

 

 

Quote

https://www.thetaxadviser.com/issues/2023/jul/blocker-corporations-considerations-for-investment-fund-managers/

 

Edited May 2, 2025 by thepupil

[Grafter]

9 hours ago, 73 Reds said:

I'm no expert but this post leaves me scratching my head just a bit.  My understanding is UBI (unrelated business income) is income generated by a tax-exempt organization that is not related to its primary business.  Generally a tax exempt organization is a charitable organization, or 501(c) non-profit organization.  No one "owns" a non-profit organization so it can't be owned in an IRA.  Also, IRAs are not tax exempt; they are tax-deferred and they have no distinct purpose other than to generate wealth for their owners.  How is any for-profit endeavor unrelated to the primary purpose of an IRA? 

 

Actually, ira s are tax exempt account, as there is no current tax on allowed activity within the account.  Allowed items are largely portfolio income (interest, dividends and cap gains).  Unallowed items are ubti, such as trade or business income.  As otherwise I put put my consulting business inside of my ira, creating an unfair advantage against any other business that has to pay income tax on its profits.   

 

https://rsmus.com/insights/services/business-tax/iras-are-subject-to-the-unrelated-business-income-tax.html

[73 Reds]

9 hours ago, Grafter said:

 

Actually, ira s are tax exempt account, as there is no current tax on allowed activity within the account.  Allowed items are largely portfolio income (interest, dividends and cap gains).  Unallowed items are ubti, such as trade or business income.  As otherwise I put put my consulting business inside of my ira, creating an unfair advantage against any other business that has to pay income tax on its profits.   

 

https://rsmus.com/insights/services/business-tax/iras-are-subject-to-the-unrelated-business-income-tax.html

So it appears that IRAs can only derive "investment income" for the income to remain tax deferred.  Once RMDs begin, I wonder whether any UBTI could be taken as part of the RMD and not be subject to additional taxation.    

[SafetyinNumbers]

On 5/1/2025 at 6:17 PM, valueventures said:

I thought I had read somewhere that PNP.TO and ELF.TO are PFICs. Could someone please confirm / refute? Thanks!

You can check yourself but in previous SIB circulars ELF has said they are not a PFIC. That makes sense since they control Empire Life.

[John Hjorth]

I'm just cross posting here to knit CofB&F stuff and things together :

 

CofB&F Topic : PFIC Classification for US Investors.