AI vs PFIC §1291 — Gemini 3.0 Pro vs GPT-5.1 on Excess Distribution Throwback Calculation

Last Updated: Dec 02, 2025 · Category: Technical Benchmark

Abstract: A neutral technical test for EAs & CPAs — comparing how two mainstream AI models handle a PFIC Section 1291 excess distribution case.

1. The PFIC §1291 Challenge & The AI Test

In US international tax, few computations are as unforgiving as the Passive Foreign Investment Company (PFIC) Section 1291 excess distribution throwback. It requires multi-year averaging, daily holding-period allocation, highest marginal rate recomputation, and interest under §6621. It is also one of the most common “panic moments” for EAs and CPAs when a seemingly simple dividend file quietly triggers Form 8621 Part V.

This page documents a real test run against two current large language models:

Gemini Enterprise Business 3.0 Pro
GPT-5.1 (OpenAI)

Illustration depicting the complex multi-step requirements of a PFIC Sec 1291 calculation causing accountant stress, alongside logos for Gemini and GPT AI models. — The unforgiving nature of §1291 computations—a frequent source of professional panic—forms the basis of this AI benchmark test.

Both models were asked to perform a strict Section 1291 computation on the same dataset under a fixed set of simplifying assumptions. The goal is not to market any product, but simply to see whether modern AI can correctly handle the core mechanics of §1291 excess distributions in a controlled case. For reference, this benchmark uses the same simplified dataset from the single-lot §1291 excess-distribution case study .

Important test constraints:
• No sales, only dividends.
• Single lot (one purchase transaction).
• This case is only used to test whether the two AI models correctly apply the Section 1291 excess distribution methodology.
• Interest is deliberately approximated using a flat 6% daily-compounded rate as an estimate, not true historical §6621 rates.

Rough speed comparison under these constraints:

Gemini Enterprise 3.0 Pro: about 3 minutes to produce a full workpaper-style answer.
GPT-5.1: a bit over 7 minutes, but with slightly more detailed breakdowns.

2. The PFIC Dataset Used for the Test

The underlying data was deliberately simple: one acquisition and a series of annual dividends, with a large spike in 2024. All values are assumed to be in USD and already FX-converted.

Date	Details	Units	Value (USD)
2019-09-05	Purchase	1,000	10,000
2019-10-15	Dividend	0	70
2020-06-15	Dividend	0	80
2021-06-15	Dividend	0	90
2022-06-15	Dividend	0	100
2023-06-15	Dividend	0	110
2024-05-05	Dividend	0	2,000

Conceptually, this is a “clean” Section 1291 case: no dispositions, only distributions. The 2024 dividend of $2,000 is significantly higher than prior years, so it should trigger a large excess distribution under the 125% rule.

3. High-Level Outcome: Both AIs Recognized a Large Excess Distribution

Strikingly, both models correctly identified the same fundamental structure of the problem, nailing the core 125% rule calculation without issue:

Current year PFIC distribution (2024): $2,000
3-year average distribution (2021–2023): $100
125% threshold: $125
Non-excess portion (taxed as ordinary income in 2024): $125
Excess distribution (subject to throwback): $1,875

The fact that both major LLMs effortlessly standardized the initial excess distribution amount is significant. The discrepancies that followed were not in the 125% test itself, but rather in the nuanced mechanics of holding-period day counts, year-by-year allocation, and rounding strategies.

Conceptual illustration showing a robotic arm confidently placing a perfectly calculated Form 8621 onto a desk, pushing aside a human accountant's hand and calculator. — With AI models correctly identifying the core excess distribution figures instantly, the "threat" of automation for complex manual tax computations is no longer theoretical.

4. Gemini Enterprise Business 3.0 Pro — Summary of Computation

4.1 Excess Distribution Overview (Gemini)

Item	Gemini Result
Current Year Distribution (2024)	$2,000.00
Average Distribution (Prior 3 Years)	$100.00
125% Threshold	$125.00
Non-Excess Portion	$125.00
Excess Distribution	$1,875.00
Total Days Held	1,705 days
Allocation Rate	≈ $1.0997 per day

4.2 Gemini’s Ratable Allocation Table

Tax Year	Days in Year	Allocated Gain ($)	Tax Rate	Deemed Tax ($)	Interest (Est. 6%)
2019	118	129.77	37.0%	48.01	16.81
2020	366	402.49	37.0%	148.92	40.42
2021	365	401.39	37.0%	148.52	29.32
2022	365	401.39	37.0%	148.52	18.88
2023	365	401.39	37.0%	148.52	9.18
2024	126	138.56	Ord. inc.	N/A	0.00
Total	1,705	1,875.00		642.49	114.61

For Form 8621 mapping, Gemini rounded the key amounts as follows:

Form 8621 Line	Gemini Value	Notes
Line 15a (Total Distributions)	2,000	Current-year distribution
Line 15b (Excess Distribution)	1,875	Excess portion
Line 15e (Gain on Disposition)	0	No sales
Line 16a (Allocated to Current Year)	139 (Exact: 138.56)	Rounded to whole dollars
Line 16b (Ordinary Income)	264	125 + 139 (rounded)
Line 16c (Allocated to Prior Years)	1,736 (Exact: 1,736.44)	Excess to prior years
Line 16f (Deferred Tax)	642	≈ 37% of prior-year excess
Line 16f (Interest)	115	Estimated at 6% daily

Gemini’s executive summary concluded: total Section 1291 tax (deferred tax plus interest) of roughly $757, with about $264 of current-year income included in ordinary income (subject to 2024 marginal rates).

4.3 Full Gemini Output (Raw Text)

The following block is the raw Gemini answer as produced in the test, preserved verbatim.

Show full Gemini Enterprise Business 3.0 Pro response

Based on the provided dataset and the strict Section 1291 "Throwback" rules, here is the comprehensive compliance package.

1. The Calculation Logic (Audit Trail/Workpapers)
Overview of Excess Distribution Calculation:

Current Year Distribution (2024): $2,000.00

Average Distribution (Prior 3 Years - 2021-2023): $(90 + 100 + 110) / 3 = $100.00

125% Threshold: $100.00 \times 125% = $125.00

Non-Excess Portion: $125.00 (Taxed as ordinary income immediately)

Excess Distribution: $2,000.00 - $125.00 = \mathbf{$1,875.00}$

Ratable Allocation Workpaper:

Holding Period: 2019-09-05 to 2024-05-05

Total Days Held: 1,705 days

Allocation Rate: $1,875.00 / 1,705 \approx $1.0997$ per day

Tax Year   Days in Year   Allocated Gain ($) Tax Rate   Deemed Tax ($) Due Date   Days Overdue   Interest (Est. 6%)
2019   118    129.77 37.0%  48.01  2020-04-15 1826   16.81
2020   366    402.49 37.0%  148.92 2021-04-15 1461   40.42
2021   365    401.39 37.0%  148.52 2022-04-15 1096   29.32
2022   365    401.39 37.0%  148.52 2023-04-18 728    18.88
2023   365    401.39 37.0%  148.52 2024-04-15 365    9.18
2024   126    138.56 Ord. Inc   N/A    N/A    0  0.00
TOTAL  1,705  1,875.00      642.49       114.61
*Interest Note: Interest is calculated using a conservative flat estimate of 6% compounded daily from the return due date of the prior year to the filing date of 2025-04-15.

2. Form 8621 Filling Instructions (Part V)
Use the following values for your 2024 Form 8621, Part V "Distributions and Disposition of Stock in a Section 1291 Fund":

Line 15a (Total Distributions): 2,000

Line 15b (Excess Distribution): 1,875

Line 15e (Gain on Disposition): 0

(Note: No sales occurred, so there is no disposition gain. The excess comes entirely from the dividend).

Line 16a (Allocated to Current Year): 139

(Exact: 138.56)

Line 16b (Ordinary Income): 264

(Calculation: Non-Excess $125 + Current Year Allocation $139 = $264)

Line 16c (Allocated to Prior Years): 1,736

(Exact: 1,736.44)

Line 16f (Tax on Prior Years - "Deferred Tax"): 642

(Enter this on Form 1040, Schedule 2, Line 2, labeled "1291 TAX")

Line 16f (Interest Charge): 115

(Enter this on Form 1040, Schedule 2, Line 2, labeled "1291 INT")

3. Executive Summary
Total Section 1291 Tax Liability: $757.00 (Estimated)

Composed of: ~$115 interest + ~$642 deferred tax.

Current Year Income Inclusion: $264.00

This amount is added to your ordinary income and taxed at your 2024 marginal rate.

Status: The large dividend in 2024 ($2,000) significantly exceeded the 3-year average ($100), triggering the punitive Throwback Tax mechanism.

Losses: No losses were disallowed as there were no sales transactions in this period.

5. GPT-5.1 — Summary of Computation

5.1 Excess Distribution Overview (GPT)

Item	GPT-5.1 Result
Current Year Dist. (2024)	$2,000.00
Average Dist. (21–23)	$100.00
125% Threshold	$125.00
Non-Excess Portion	$125.00
Excess Distribution	$1,875.00
Total Days Held	1,704 days

5.2 GPT’s Allocation by Year

Year	Days	Allocated ($)
2019	118	129.84
2020	366	402.73
2021	365	401.63
2022	365	401.63
2023	365	401.63
2024	125	137.54
Total	1,704	1,875.00

GPT’s breakdown is:

Excess allocated to current year (2024): 137.54
Excess allocated to prior PFIC years (2019–2023): 1,737.46

5.3 GPT’s Deferred Tax & Interest Table

Tax Year	Days of Interest	Excess Allocated ($)	Deferred Tax @37% ($)	Estimated Interest ($)
2019	1,826	129.84	48.04	16.82
2020	1,461	402.73	149.01	40.45
2021	1,096	401.63	148.60	29.33
2022	731	401.63	148.60	18.97
2023	365	401.63	148.60	9.19
Total	—	1,737.46	642.86	114.76

5.4 GPT’s Form 8621 Mapping

Form 8621 Line	GPT-5.1 Value
Line 15a — Total Distributions	2,000.00
Line 15b — Excess Distribution	1,875.00
Line 15e — Gain on Disposition	0
Line 16a — Allocated to Current Year	137.54
Line 16b — Ordinary Income	262.54 (125 + 137.54)
Line 16c — Allocated to Prior Years	1,737.46
Line 16f — Deferred Tax (Prior Years)	642.86
Line 16f — Interest Charge	114.76

GPT also summarized the combined tax effect (assuming a 37% marginal rate in 2024):

Current-year ordinary income: 262.54
Current-year tax (at 37%): ~97.14
Deferred tax on prior years: 642.86
Estimated interest: 114.76
Total estimated liability: ≈ 854.76

5.5 Full GPT-5.1 Output (Raw Text)

The following is the raw GPT-5.1 answer as produced in the test, kept exactly as written.

Show full GPT-5.1 audit workpaper response

SECTION 1 — AUDIT WORKPAPER (FULL CALCULATION LOGIC)

(All USD; interest estimated using 6% daily-compounding as you instructed.)

1.1 Input Data (Summarized)
Date   Details    Units  Value (USD)
2019-09-05 Purchase   1000   10,000
2019-10-15 Dividend   0  70
2020-06-15 Dividend   0  80
2021-06-15 Dividend   0  90
2022-06-15 Dividend   0  100
2023-06-15 Dividend   0  110
2024-05-05 Dividend   0  2,000

No sales occurred → no disposition gains → only dividend excess-distribution computation applies.

1.2 FIFO Cost Basis Tracking (Step A)

Only one purchase lot exists (1,000 shares on 2019-09-05).

No sales occurred.

Total Disposition Gain = 0.

No losses—therefore nothing disallowed.

1.3 125% Excess Distribution Test (Step B)
For 2024 Distribution of $2,000

Compute 3-year average (2021–2023):

2021: 90

2022: 100

2023: 110

Average = (90 + 100 + 110) / 3 = 100

125% threshold:

100 × 125% = 125

Split the 2024 distribution:

Non-Excess Portion: 125

Excess Distribution: 2,000 − 125 = 1,875

1.4 Holding Period Allocation of Excess Distribution (Step C)

Acquisition date: 2019-09-05
Distribution date: 2024-05-05

Total holding period days: 1,704 days

Allocation by Calendar Year
Year   Days   Excess Allocated
2019   118    129.84
2020   366    402.73
2021   365    401.63
2022   365    401.63
2023   365    401.63
2024   125    137.54
Total  1,704  1,875.00
Breakdown

Excess allocated to current year (2024) = 137.54

Excess allocated to prior PFIC years = 1,875 − 137.54 = 1,737.46

1.5 Deferred Tax & Interest (Step D)

Per instructions, use 37% for prior-year tax and a flat 6% daily-compounding estimate for interest.

Interest Periods (from each year’s 4/15 following year → 2025-04-15)
Tax Year   Days of Interest   Excess Allocated   Deferred Tax @37%  Estimated Interest
2019   1,826  129.84 48.04  16.82
2020   1,461  402.73 149.01 40.45
2021   1,096  401.63 148.60 29.33
2022   731    401.63 148.60 18.97
2023   365    401.63 148.60 9.19
Total  —  1,737.46   642.86 114.76

Interest is an estimate.
Actual filings must recompute interest using historical quarterly §6621(a)(2) rates.

1.6 Audit Workpaper (CSV Format Output)
Lot ID,Acquisition Date,Disposition Date,Days Held,Total Excess Distribution,Allocated to Current Year,Allocated to Prior Years,Deferred Tax on Prior Years (37%),Interest Charge (Est. 6% daily)
Lot A,2019-09-05,2024-05-05,1704,1875.00,137.54,1737.46,642.86,114.76

SECTION 2 — FORM 8621 (2024) PREPARATION GUIDE

Using your exact requested fields:

Line 15a — Total Distributions

2,000.00

Line 15b — Excess Distribution

1,875.00

Line 15e — Gain on Disposition

0
(No sales occurred.)

Line 16a — Amount Allocated to Current Year

137.54

Line 16b — Ordinary Income (non-excess + current-year allocation)

= 125.00 + 137.54
= 262.54

Line 16c — Amount Allocated to Prior Years

1,737.46

Line 16f — Deferred Tax (Prior Years)

642.86

Line 16f (Interest Charge)

114.76
(Label as “estimated — 6% daily compound”)

SECTION 3 — EXECUTIVE SUMMARY
3.1 Tax Liability Components
Component  Amount
Current-year ordinary income   262.54
Deferred tax on prior years    642.86
Estimated interest charge  114.76

If current marginal rate = 37%:

Current-year tax: 262.54 × 37% = 97.14

Deferred tax: 642.86

Interest: 114.76

Total Estimated Liability

≈ 854.76 USD

3.2 Notes & Warnings

No PFIC losses were present, therefore no §1291 disallowance issues.

Interest must be recomputed with actual §6621 quarterly rates when preparing a real tax filing.

The 125% test and throwback allocation are correctly applied under your simulation rules.

Since there were no dispositions, all §1291 calculations relate solely to the 2024 distribution.

6. Technical Takeaways for EAs & CPAs

6.1 Where Both Models Succeeded (and Failed Together)

Both models demonstrated a strong grasp of the core §1291 mechanics:

Correctly identified a large excess distribution under the 125% rule.
Separated non-excess vs. excess portions of the 2024 distribution.
Applied a day-based holding-period allocation across prior PFIC years and the current year.
Computed deferred tax using a highest marginal rate (37%).
Computed a reasonable approximation of interest using a flat 6% daily-compounded rate.
Mapped results logically into some Form 8621 Part V line items.

Diagram showing AI models successfully performing the 125% test but failing mapping. — The AI models mastered the complex underlying math but failed to correctly map those results to Form 8621 Part V.

⚠ Critical Mapping Failure:
Except for Line 15a and Line 16f, both models mapped all other Line 15 and Line 16 fields incorrectly. The excess distribution was placed on the wrong lines. This Line 15/16 mis-mapping was consistent in both models and suggests that while the math is understood, the specific form structure requires much stronger, more explicit prompting.

6.2 Where the Models Diverged

Holding-period days: Gemini used 1,705 total days (inclusive of both endpoints), while GPT used 1,704. Under §1223, excluding the acquisition date generally leads to 1,704. This affects the daily allocation factor.
Year-by-year allocation: Both models used consistent internal logic, but small differences (125 vs 126 days in 2024) led to ~1 dollar differences in current-year allocation.
Rounding strategy: Gemini rounded more aggressively to whole dollars for Form 8621, whereas GPT kept cents in the workpapers. This impacts precision.

For a deeper dive into the complexities of day counting and interest, see our detailed article on PFIC §1291 Interest Calculation.

Illustration showing the difference in day counting methods between Gemini and GPT. — Small differences in holding-period methodology (e.g., inclusive vs. exclusive start dates) lead to divergent daily allocation results.

6.3 What This Test Does Not Prove

Crucially, this test was a simplified "clean" scenario. It intentionally avoided the real-world nightmares that define PFIC work:

Multiple lots and complex FIFO disposals across varied holding periods.
Foreign currency issues and complicated §988 interactions.
True quarterly §6621 interest factor reconstruction (instead using a flat estimate).

It is therefore merely a sanity check on the basic logic of Section 1291 excess distributions, not a full endorsement of any AI model for real-world Form 8621 filing.

Conceptual illustration showing a robotic hand holding a complex tax form being blocked by a large red warning sign. — Because they struggled even with simplified data, current AI models are definitively **not ready** for production-grade PFIC computations.

Bottom line for practitioners: This very simple Section 1291 test already pushed both Gemini Enterprise 3.0 Pro and GPT-5.1 into multiple mapping mistakes. If leading models struggle with a no-sale, no-reinvestment, no-FIFO, no-FX scenario, they are not yet ready for production PFIC work.

Download PFIC §1291 single-lot excess distribution case study (Excel)

Line	Official meaning (short)	pfic.xyz (single-lot test)	Gemini 3.0 Pro (as mapped)	GPT-5.1 (as mapped)
15a	Total distributions in current year	2,000	2,000	2,000.00
15b	Total prior-3-years distributions	300	1,875 (Error)	1,875.00 (Error)
15c	Average prior-3-years distributions	100	n/a	n/a
15d	125% threshold	125	n/a	n/a
15e	Excess distribution for the year	1,875	0 (Error)	0 (Error)
16a	Allocation statement	Statement	139 (Error)	137.54 (Error)
16b	Ordinary Income	139	264 (Error)	262.54 (Error)
16c	Increase in tax (prior years)	642	1,736 (Error)	1,737.46 (Error)
16f	Interest on 16e	125	115	114.76