PFIC reporting under MTM

[shailgupta]

hi.

I have some old foreign investments that have been classified as PFIC. These have unrealized losses (and still do) at the time of PFIC classification. I was planning to use the MTM method to report on 8621.

For 2024, while there is an unrealized gain based on the value on Dec 31 from the value Jan 1, both these values are still substantially below original purchase price. From what I've read, "unreversed inclusions" can never be negative so will my original cost basis be preserved, therefore resulting in no ordinary income from the unrealized gain? 

Also, do the dividends distributed just get added as ordinary dividends (like a 1099-DIV) or do these get reported differently? Thanks!

[DaveF1006]

Yes. You're correct that unreversed inclusions cannot be negative. This means that previously taxed unrealized gains cannot be used to offset future losses.

However, if your current unrealized gain is still below your original purchase price, you may not have ordinary income from the gain. Instead, the cost basis is preserved, and only gains exceeding prior inclusions would be taxable.

PFIC dividends are generally reported as ordinary dividends on Form 1099-DIV, similar to domestic dividends.  if you took a QEF election, the dividends can be taxed at the capital gains rate.