Audit-Ready PFIC Form 8621 Workpapers for EAs & CPAs

Will Your Signed Form 8621 Hold Up in an IRS Review?
Show me your work — how was this number calculated?

1. Why PFIC Is a Signature Risk for EAs & CPAs

Before signing any PFIC return, every EA and CPA faces one non-negotiable question:

If this Form 8621 is pulled for IRS review, can you produce a complete, traceable, year-by-year calculation trail that defends every number you signed?

If the answer is not “yes,” then it’s no longer a calculation error — it’s a due-diligence failure…

PFIC reporting under §1291 and Mark-to-Market (§1296) raises the stakes because Form 8621 is not asking for a final number. It - especially Line 16a - demands a traceable, defensible calculation trail behind that number.

⚠️ Form 8621 — Line 16a (Official Instruction)

“If there is a positive amount on line 15e or 15f (or both), attach a statement for each excess distribution and disposition. Show your holding period for each share of stock or block of shares held. Allocate the excess distribution or gain to each day in your holding period. Add all amounts allocated to days in each tax year.

  • How excess distributions were allocated day-by-day across the holding period
  • How those amounts rolled up year-by-year into PFIC and non-PFIC tax years
  • How tax and §6621 interest were derived from those allocations
  • How lots, basis, and UNI were tracked throughout dispositions and reinvestments
  • How FX treatment remained consistent across multiple years

Line 16a is a compliance requirement — not a suggestion; Form 8621 is not asking you to type a number, but to provide a calculation history that can be reproduced, reviewed, and defended.

“Show me your work — how was this number calculated?”

For a deeper breakdown of why Line 16a is structurally a built-in workpaper requirement — not a mere attachment — see our technical article:

PFIC §1291 Calculation Explained — The Hidden Mechanics Behind Form 8621 Line 16a

Once you understand what Line 16a truly demands, the real risk becomes unmistakable: without a defensible audit trail, even a “correct” number cannot protect the signer.

2. What IRS Expects in a Form 8621 Examination

The IRS does not evaluate PFIC filings based on how neat Form 8621 looks. It evaluates whether the filer can produce the underlying evidence that supports each line item — especially those derived under §1291 and §1296.

Official instructions make one principle unmistakable:

You must retain sufficient records to substantiate PFIC calculations.

  • Purchases, distributions, reinvestments, FMV, dispositions, and basis adjustments
  • Consistent FX treatment over multiple years
  • Lot-level tracking rather than aggregated totals
  • Retention beyond a standard 3-year lookback

In an examination, an IRS agent is legally entitled to request:

  • Lot-level history of PFIC holdings
  • Year-by-year allocation of excess distributions under §1291
  • §6621 daily interest schedules by PFIC year
  • Basis and UNI movement under §1296
  • Mapping from raw transactions to Form 8621 line items for both regimes

The IRS does not need to dispute your math to question your filing — it only needs to ask for the trail.

3. The Minimum Standard for Audit-Ready PFIC Workpapers

Once you know what the IRS can request, the next question becomes practical:

  1. Can your workpapers reproduce §1291 and §1296 mechanics?
  2. Can another professional review and follow them?
  3. Can they withstand direct examination by an IRS agent?

Audit-ready PFIC documentation must demonstrate three things:

  • Completeness — no missing lots, reinvestments, dispositions, or FX events
  • Traceability — every Form 8621 number can be tied back to source transactions
  • Reproducibility — the calculation can be recreated independently

3.1 Section 1291 — The Evidence Behind Line 16a

Form 8621 Part V may look simple, but real §1291 cases often involve:

  • 10+ years of distributions and reinvestments
  • 125% base-period testing
  • Per-day allocation across the holding period
  • Historic highest marginal rates
  • Separate §6621 daily interest streams by PFIC year

Line 16a is not a formula — it is evidence of the entire engine.

3.2 What an Audit-Ready PFIC Workpaper Set Must Contain

  • Lot-level ledger with full transaction history
  • Year-by-year PFIC schedules with allocations and inclusions
  • §6621 interest schedules by PFIC year
  • Basis and UNI movement across years
  • FIFO disposition trail
  • Mapping to Form 8621 line items
  • Attachments suitable for IRS examination

If your workflow cannot produce these artifacts, the risk sits with the signer — not the tool.

4. Where Mainline Tax Software Fits — and Where It Doesn’t

CCH, Lacerte, UltraTax, Drake, and similar platforms are extremely good at:

  • Return assembly and form-flow.
  • E-file and diagnostics.
  • Carrying PFIC results to Form 1040, Schedule 1, Schedule 2, Schedule D, Form 1116, and others.

But by design, they are not full PFIC calculation engines. In almost every case:

  • They show you Form 8621 input screens.
  • They accept Section 1291 and §1296 results.
  • They expect you to calculate those results elsewhere and simply type them in.

It is not a flaw in the software. PFIC was simply never designed to fit into a single input screen. The responsibility for the underlying engine and workpapers remains with the signing EA or CPA.

5. How pfic.xyz Was Designed: Built on IRS Requirements — Not Assumptions or Judgment Calls

The PFIC calculator behind pfic.xyz was not built from shortcuts, approximate formulas, or “rule-of-thumb” spreadsheets. It was engineered by carefully studying:

  • Form 8621 Instructions
  • IRC §1291 (Excess Distributions and the default PFIC regime)
  • IRC §1296 (Mark-to-Market for marketable PFIC stock)
  • §6621 interest requirements and related timing rules

The guiding principle is not a preference — it comes directly from IRS recordkeeping rules:

Every requirement stated in the Internal Revenue Code, Treasury Regulations, and the Form 8621 Instructions must leave a visible, reviewable footprint in the workpapers.

In practical terms, IRS expectations mean:

  • No black boxes — calculations must be reviewable.
  • No hidden logic that cannot be tested, reproduced, or examined.
  • No line on Form 8621 — especially Line 16a — without a corresponding, traceable trail in the workbook.

5.1 Turning IRS Requirements Into a Readable, Reproducible Audit Trail

Based on the requirements behind Form 8621 Line 16a, pfic.xyz breaks every mandated §1291 component into clear, traceable, and fully reproducible workpapers.

  • §1291 excess distribution calculations
  • FIFO disposition tracing
  • Historic 15b tracking
  • §6621 daily interest schedules
  • FX-consistent basis movements
  • Annual roll-ups

To support these requirements, the system generates separate, audit-ready worksheets:

  • 16a_Summary — annual results and holdings overview
  • 16a_Disposition — FIFO lot tracing and gain segmentation
  • 16a_Excess_Distribution — multi-year excess allocation with historic 15b
  • §6621_Interest — year-specific interest detail
  • FX_Basis — currency and basis movement tracking

No black boxes. No hidden formulas. No unexplained totals. Every figure can be traced back to source transactions and IRS logic.

pfic.xyz doesn’t give you a number — it gives you an audit trail.

6. Example Output Files (Sections 1291 & 1296)

You receive a multi-sheet Excel file built for real PFIC cases, fully audit-ready and optimized for CCH Axcess input.

A. Section 1291 Outputs Download Sample Section 1291 Result Excel

  • CCH_8621_Input — ready for CCH Axcess / ProSystem fx Form 8621 input fields.
  • 16a_Summary — key computation data and holdings schedule, with return of capital and basis adjustments where applicable.
  • 16a_Disposition — FIFO disposition details, annual tax/interest breakdown, and gain/loss schedule where applicable.
  • 16a_Excess_Distribution — if distributions occurred: per-block annual includible distributions with full historical Line 15b carry history.
  • CCH_Upload — additional worksheet that can be uploaded to CCH where supported.
  • 8621 Filing Example — mock-up of Form 8621 Part I and Part V populated from the calculated results.
  • Other IRS forms (1040, Schedule 1, Schedule 2, Schedule B, Schedule D, Form 8949, Form 1116), if applicable.
  • PFIC_WS — the main working paper: all calculations with FX conversion and gain/loss categorization mapping.

B. MTM (§1296) Outputs Download Sample MTM (§1296) Result Excel

  • MTM_Calculations — annual FMV and MTM calculations (Lines 10a–12), with FIFO disposition components (Lines 13–14) where applicable, and UNI/basis adjustments.
  • 8621 MTM Filing Example — Form 8621 Parts I, II, and IV populated from the MTM engine output.
  • CCH_1.21_Additional — additional MTM-related worksheet uploadable to CCH.
  • CCH_6.2_ElectionC — Section 1296 MTM election worksheet adapted to CCH’s Election C layout.
  • CCH_6.3_Sale1296 — CCH worksheet for sales and dispositions under the MTM regime.
  • Other IRS forms (1040, Schedule 1, Schedule D, Form 8949), if applicable.

7. Compare Your Own Workpapers — Audit Reality Check

If you’ve handled a PFIC case before — §1291 or MTM (§1296), in Excel, by hand, or with other software — you can run a simple reality check:

  1. Use the same raw transaction data.
  2. Run it once through pfic.xyz.
  3. Compare the workpapers side-by-side.
Run Your Audit Reality Check →

pfic.xyz is continuously improving its workpapers — not claiming perfection, but already far closer to IRS expectations than most manually maintained PFIC files.