turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
turbotax icon
cancel
Showing results for 
Search instead for 
Did you mean: 
Announcements
Close icon
Do you have a TurboTax Online account?

We'll help you get started or pick up where you left off.

iceman321
Returning Member

Foreign mutual funds & 8621

Hi,

I have mutual fund investments in India (no dividend) that have been held prior to me moving to the US. There are no distributions from those mutual funds, so no income. There have been no investments made into those after moving to the US.

 

One of the tax consultants whom i consulted asked me to enter these as 'Custodial accounts' .  While these mutual fund investments may be used for my child's education in the future, these MFs do not have my child's name in them as they were opened when I lived in India.

My questions are

1. Is it right to file these as 'Custodial accounts' ?

2. Is there unrealized gains that I need to pay tax on though all of these mutual funds were opened when I was not a US tax person ?

x
Do you have an Intuit account?

Do you have an Intuit account?

You'll need to sign in or create an account to connect with an expert.

2 Replies

Foreign mutual funds & 8621

If you are a US person and you control certain foreign financial accounts worth more than $10,000, you must report them using the "FBAR" report.  This is a reporting requirement only, no tax is owed.  I don't know if a mutual fund must be reported, you can look here for the rules and a link to the report.

https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-a...

 

As far as taxes are concerned, you pay US tax according to US law.  US law does not tax unrealized gains.  

 

Now, that can get a little tricky depending on what you own and how it works.  For example, dividends may be taxed as ordinary income or as capital gains.  And if the dividends are reinvested to buy more shares, that can be a taxable event that increases your basis in the fund, or it could be a non-taxable event that does not raise your basis (but results in more tax when you withdraw because you have more shares with a lower average basis).  So I don't feel 100% confident in saying you owe nothing until you withdraw funds.  

 

I don't think your advisor is correct about calling these custodial accounts.  

 

I also don't see where form 8621 comes into play.

 

@pk

 

pk
Level 15
Level 15

Foreign mutual funds & 8621

@iceman321 , generally agreeing with my colleague ( @Opus 17  ) as to the tax handling of  Mutual Funds in general.  However, for foreign Mutual Funds  there may be another wrinkle, depending  on exact facts.  This is because these are often ( based on  characteristics  of the entity and investment pattern ) classified as  PFIC  ( Passive Foreign Investment Company ) with a whole bunch of generally onerous / punishing taxing regime.  That is where the form 8621 comes in.   You also  then have to choose  mark-to-market or  backward allocation of  imputed gain over the holding period.  

For a more detailed and focused answer  on this  ( and as applicable to you specifically ) you will have to provide more  details about the fund, where constituted etc. etc.  If you are uncomfortable detailing  in this public forum, you can choose to use  PM  ( but again NO Personally Identifiable Information).

 I also agree with  @Opus 17  that this is not  a "custodial account" for purposes of FBAR  ( form 114 at FinCen.gov ) or FATCA ( form 8938 along with your return ).

Another  issue to be aware of  is  even in mark-to-market, your foreign taxes associated with this  imputed income kind of gets in trouble -- no foreign taxes to offset US taxes  and similar issue  if you choose to  use the  delayed / allocated actual income and taxes thereon.

Depending on the amounts  involved , you may want  to divest this  and/or  use the services of a tax professional familiar with  PFIC.

 

Is there more I can do for you /

 

Namaste ji

 

pk

message box icon

Get more help

Ask questions and learn more about your taxes and finances.

Post your Question
Manage cookies