Do I file Form 8621 for index funds I bought abroad?
Generally yes, and this is the situation that surprises people most. Ordinary index funds and mutual funds bought in the country someone moved to are foreign pooled investments for these purposes, however mainstream the product is locally. Nothing about the investment needs to be exotic or offshore. A low cost tracker held in a local brokerage account, bought on the advice of a local bank, is the usual fact pattern. The label on the product does not decide it. What decides it is that the investment is a foreign pooled vehicle and a US person holds shares in it.
Do I file if the fund paid no distribution this year?
A quiet year is not a year to ignore. The reporting turns on holding the shares and on what has happened to them, not on whether cash came out, and the default treatment builds through the holding period rather than only in years with a distribution. A run of silent years is precisely what makes a later sale expensive. The practical value of dealing with a holding early is that the choices are still open. The longer a position sits unaddressed, the more of its history is already fixed.
Which election should I make on a foreign fund?
There are broadly two alternatives to the default treatment. One taxes the holder each year on a share of the fund's own income as it arises. The other marks the holding to market annually, so the change in value is brought into account each year whether or not anything is sold. The first depends on the fund supplying figures it has no obligation to produce, so availability is a question of fact rather than preference. The second needs a reliable annual value. Which one fits depends on the fund, the holding period and what the holder intends to do with the position.
What happens if I never made an election on my fund?
The default treatment applies, and it is built to be worse than the alternatives. Distributions and gains are thrown back across the period the shares were held and carry an interest charge for the delay, so the cost of a sale reflects how long the holding sat there rather than only what it made. That is why the holding period is the first thing to establish on any fund that has been held for years. It also explains why two investors with the same gain on the same fund can face very different outcomes.
Does a fund held inside a foreign account still count?
The account is a wrapper. What matters is what is inside it. A pooled fund held through a local brokerage account, a platform or a life assurance style product is still a holding in that fund, and the question becomes who is treated as owning the shares for US purposes. Some wrappers change that answer and many do not. So the review has to go through the account to the underlying holdings, line by line, rather than stopping at the name of the product printed on the statement.
Can I make an election on a fund I have held for years?
The elections have timing built into them, which is the whole reason the planning question is which one and when. A holding that has run for years under the default treatment has already accumulated a history, and an election made now generally addresses the position from here rather than unwinding what came before. That does not make it pointless, because stopping the accumulation has value of its own, but it does mean the earlier years have to be worked out on the default footing first. Establish the holding period before deciding anything.
Why should a Canadian rarely own a US LLC?
Because the two systems classify it differently. The United States generally treats a single-member LLC as transparent while Canada treats it as a corporation, so the income is taxed in different hands in each country and the foreign tax credit does not line up. The result is tax paid twice with no relief to claim. Other structures reach the same commercial outcome without the mismatch. See why a Canadian should rarely own an LLC.
What is a PFIC, and why do Canadian mutual funds cause trouble for US persons?
A passive foreign investment company is a non-US company that is mostly passive by income or by assets — which describes almost every Canadian mutual fund and ETF. For a US owner the default regime taxes distributions and gains punitively with an interest charge for the years the value built up. Two elections fix it, and both need annual information the fund may not produce for you. Holding the same exposure through US-domiciled funds usually avoids the problem entirely. See PFICs and Canadian mutual funds.
