Why Your Tax Software Can’t Calculate PFIC — And What to Do Instead

Most tax software can show you Form 8621. Very few tools can calculate Section 1291 or MTM §1296 and produce audit-ready workpapers.

This article is written for CPAs, EAs, and small firm partners who handle PFIC reporting for real clients — not classroom examples. It explains why standard tax software stops at data entry, where Excel breaks for PFIC, and how a dedicated calculation engine like pfic.xyz fits beside CCH and other platforms.

1 — The uncomfortable truth about “PFIC support” in tax software

If you prepare U.S. returns for clients with foreign mutual funds, pensions, or pooled investments, you have probably seen this pattern:

• Your client brings years of statements for a foreign fund that is clearly a PFIC.
• You open the Form 8621 module in CCH, Lacerte, UltraTax, Drake, or similar.
• You see fields for excess distribution, additional tax, interest charge, MTM inclusion… but no actual engine to compute them.

In other words, your tax software:

• Can display Form 8621.
• Can e-file Form 8621.
• Can flow results to Form 1040, Schedule 1, Schedule 2, Schedule D, Form 1116, etc.
• But it expects you to calculate the Section 1291 or MTM (§1296) numbers somewhere else, then simply type them in.

That “somewhere else” is usually an ad hoc Excel workbook living on your desktop — or worse, several versions of it, for several years, for several PFICs.

Most tax software is a Form 8621 input system, not PFIC calculation software.

This is not a criticism of CCH or any specific vendor. PFIC was simply not designed for a one-screen calculation model. The law itself is multi-year, lot-level, and deliberately complex.

2 — Why Form 8621 is beyond a simple “input screen”

The core PFIC engines live in two sections:

• Section 1291 — Excess distributions & default regime
• Section 1296 — Mark-to-Market (MTM) for marketable PFIC stock

Both create demands that are fundamentally different from “domestic mutual fund on Schedule D” work.

2.1 Section 1291 excess distribution calculation

For Section 1291, a realistic engagement may involve:

• 10+ years of distributions and reinvestments (each reinvestment is a new lot).
• A final or partial disposition treated as an excess distribution.
• 125% base-period testing across prior three years, lot by lot.
• Per-day allocation of excess amounts across the entire holding period.
• Historic highest marginal rates for each PFIC year.
• Separate §6621 daily interest from each prior-year due date to the current year.

Form 8621 Part V (Lines 15–16) gives you boxes for the final answers. It does not tell you how to track:

• Which purchase lots are still open after multiple dispositions.
• Which parts of distributions were included in income vs. deferred.
• How much of each year’s excess went to PFIC years vs. pre-PFIC years.
• How to compute tax at the historic highest rate, year by year, with interest.

2.2 Section 1296 MTM calculation

For MTM (§1296), the math is different but the structural burden is similar. A proper MTM engine has to:

• Track FMV by year and compute annual MTM gain/loss.
• Maintain adjusted basis and unreversed inclusions (UNI) by lot.
• Separate what becomes ordinary income vs. what remains capital.
• Coordinate MTM inclusions with actual sales, loss limitations, and elections.

Again, Form 8621 Part IV shows only the final fields: 10a, 10b, 10c, 12, 13a–13c, etc. The heavy lifting has to happen before anything gets typed into those boxes.

3 — Where Excel really breaks for PFIC (especially §6621)

Excel is a powerful tool, and many CPAs and EAs can (and do) build impressive PFIC spreadsheets. The problem is not that Excel is “too weak” — the problem is that PFIC requires structural guarantees that Excel does not naturally provide.

3.1 §6621 daily interest as a stress test

A good litmus test is §6621 interest for Section 1291:

• Quarterly interest rates that change over time.
• Daily compounding from each prior-year due date to the current return due date.
• Separate interest streams for each PFIC year’s additional tax.

Many experienced tax pros can build a §6621 daily interest model in Excel. It is absolutely doable — and pfic.xyz could easily publish a §6621 daily interest template just for that purpose.

But here is the honest observation:

If building §6621 quarterly rates with daily compounding in Excel already feels like a stretch, then a full Section 1291 or MTM engine is well beyond what Excel can safely handle for real-world PFIC histories.

Getting §6621 right is only the first layer of the onion. The remaining 90% of the work is:

• Lot-level FIFO tracking over a decade or more.
• Per-day allocation of excess distributions.
• Year-by-year mapping of tax and interest.
• Consistency between distributions, reinvestments, dispositions, and MTM adjustments.

3.2 The Excel failure modes that worry reviewers

In practice, PFIC Excel models tend to break in familiar ways:

• Ranges extended manually, formulas not copied to all rows.
• Hidden columns with legacy logic from prior cases.
• Partial conversions between currencies, missing FX rates, or mixed sources.
• Lot histories that cannot be confidently tied to any single audit trail.

For a one-year, one-lot teaching example, Excel is fine. For a 12-year KiwiSaver-like fund with dozens of reinvestments and partial redemptions, it becomes very hard to argue that a manually maintained workbook is the best available method.

4 — What tax pros actually need: a PFIC calculation engine

For CPAs and EAs, the real question is not:

“How do I fill Form 8621 in my tax software?”

but rather:

“If this PFIC position is examined, can I show a clear, defensible workpaper trail behind every number I typed into Form 8621?”

That means you need something more than a Form 8621 “input screen.” You need:

• A Section 1291 engine that can:
  • Track each purchase and reinvestment lot.
  • Perform 125% excess-distribution tests.
  • Allocate excess by day, then by tax year.
  • Apply historic highest rates and §6621 interest.
• A Section 1296 MTM engine that can:
  • Compute annual MTM inclusions and allowed losses.
  • Maintain UNI and adjusted basis over time.
  • Coordinate MTM with actual dispositions.
• An output layer that produces audit-ready workpapers:
  • Lot-level ledgers.
  • Year-by-year PFIC schedules.
  • Interest worksheets.
  • Form 8621 statement attachments.

Your existing tax software is still the right place to file the return. But it is not designed to be the place where the entire Section 1291 or MTM algorithm is implemented.

5 — How pfic.xyz fits beside CCH and other tax platforms

The PFIC calculator at pfic.xyz was built with exactly this division of labor in mind:

• Your tax software handles the overall return and e-filing.
• pfic.xyz acts as a dedicated PFIC calculation engine that generates:
  • Section 1291 and MTM results, and
  • the workpapers you need to defend them.

The engine is designed for professionals first — CPAs and EAs who already understand PFIC concepts and just need a consistent, auditable way to do the math. A motivated individual filer can also use it, but the workflow, output structure, and naming conventions are all oriented toward professional practice.

For a full walkthrough of the upload and review process, see the pfic.xyz User Guide.

7 — Protecting billable time and your license

PFIC is not just “one more form” in your software menu. It is a long-running, lot-level, FX-heavy, interest-bearing regime that sits uncomfortably on top of the modern tax workflow. The core risk is not that you will mistype Line 16f, but that you will be unable to show your work when an examiner asks:

“How did you arrive at this Form 8621 number?”

Your main tax software remains the right place to manage the overall return, entity relationships, and e-filing. What it does not claim to be — and what it was never truly designed to be — is a full PFIC Section 1291 and MTM §1296 calculation engine.

That is the gap pfic.xyz aims to fill:

• Turning multi-year PFIC chaos into standardized, repeatable calculations.
• Producing Excel workpapers that you can actually defend.
• Integrating cleanly with CCH and other tax platforms via dedicated input and upload sheets.

If building and maintaining a §6621 daily interest model in Excel already consumes more time than it is worth, it is a realistic signal that a full Section 1291 or MTM engine belongs in software — not in a one-off workbook.

For details on how to integrate pfic.xyz into your workflow, including CSV preparation, review steps, and filing examples, see the pfic.xyz User Guide.