Applicable to global brokers including IBKR, Saxo, Swissquote, Hong Kong/Singapore platforms, Australia/New Zealand PIE/PIR systems, UK OEIC/ICVC, and EU UCITS.
The hardest part of preparing Form 8621 is usually not §1291 calculations, but identifying which transactions are legitimate PFIC events and which are merely internal ledger adjustments (ghost transactions). Ignoring these appropriately avoids:
Under IRC §1291 (Excess Distributions) and §1296 (MTM):
Everything else is noise (ghost transactions) and must be ignored.
| Transaction Type | PFIC Treatment | Reason |
|---|---|---|
| Management Fee / Advisory Fee | ❌ Ignore | Not investor-initiated; even when units decrease, it is a fund-level fee mechanism, not a disposition. |
| Custody Fee | ❌ Ignore | No bearing on PFIC income or basis. |
| NAV Adjustment / Revaluation | ❌ Ignore | Pure valuation accounting; no PFIC event. |
| Unrealized Gain/Loss | ❌ Ignore | Reportable only with MTM election. |
| PIE/PIR Tax (AU/NZ) | ❌ Ignore | Foreign tax credit item, not PFIC income. |
| Stamp Duty / Transaction Tax | ❌ Ignore | Expense, not a distribution or sale. |
| Internal Rebalancing | ❌ Ignore | Top-level units unchanged; not your transaction. |
| Investment Earnings Adjustments | ❌ Ignore | Common in AU/NZ/Asia; internal ledger entries, not income or disposition. |
Do not split DRIP into two records. Simply mark as Reinvestment. The system automatically:
Below are typical internal ledger entries shown in a simplified two-column format. These entries frequently change units and/or value but are not PFIC events.
| Description | Why It Is Ignored |
|---|---|
| Investment Earnings Adjustment (taxable / non‑taxable) | Internal fund accounting; not a distribution or sale. |
| Management Fee deducted in units | Fund-level fee mechanism; never a PFIC disposition. |
| PIE/PIR Tax entries | Not PFIC income; relevant only for FTC (Form 1116). |
| Account/Platform Fees | Expenses; do not alter PFIC tax outcomes. |
| NAV / Value Revaluation Adjustments | Valuation-only changes; no PFIC relevance. |
This fee structure — where management fees are collected by redeeming tiny fractional units — is common in AU/NZ managed funds, HK ILAS products, and some Asian/European legacy platforms. These events look like disposals in CSV exports, but they are not PFIC dispositions and must be ignored.
| Country/Region | Prevalence | Notes |
|---|---|---|
| Australia | ★★★★★ | Most common; unit cancellation widely used. |
| New Zealand | ★★★★★ | PIE/PIR funds frequently adjust units. |
| Hong Kong | ★★★★☆ | ILAS products use unit deduction for fees. |
| Singapore | ★★☆☆☆ | Occasional in older platforms. |
| Japan | ★★☆☆☆ | Some structured funds use fractional redemption. |
| EU UCITS | ★☆☆☆☆ | Rare; usually NAV-embedded expenses. |
Many U.S. tax preparers misclassify unit-deduction fees as PFIC dispositions because the CSV shows negative units. This results in:
Correct treatment requires ignoring these entries entirely; they are fund-level expense mechanics, not taxable events.
Q: If units decrease, isn’t that technically a sale?
A: No. §1291 requires a shareholder-initiated sale or exchange. Fee-driven unit cancellation does not qualify.
Q: What if the platform labels the entry “taxable”?
A: Labels do not control tax character. Internal ledger adjustments are not PFIC income.
Q: Do these affect basis?
A: No. Basis is unchanged because no sale occurred.