When Form 1041 Qft Passive 2023-2024

Welcome to another two minute finance for expats. This guide comes to you with the help of our friends at Ask Why Group International Tax Advisory. Our topic today is pivots. I know it sounds like a terrible disease and to a certain extent, you'd be right. It's a financial disease. Pivot stands for Passive Foreign Investment Company. A Passive Foreign Investment Company, or PIVOT for short, is a foreign corporation, meaning a non-US corporation, where 75% or more of its income for the year is passive income or 50% or more of the assets produce passive income or are held for the production of passive income. Passive income generally includes dividends, interest, rents, royalties, and capital gains. For all intents and purposes, PIVOTs are non-US investment funds such as mutual funds, hedge funds, and exchange-traded funds or ETFs. Like many expats, you're probably asking yourself, "Well, why do I need to know this?" The answer is because PIVOTs are subject to draconian taxation by the US that often wipes out any profits that they generate, and you have to file yet another pesky report to the IRS. So let's talk tax distribution from PIVOTs. Such as dividends, they are taxed as ordinary income and don't qualify as qualified dividends, which attach to the generally more advantageous long-term capital gains tax rate. Pivot gains and what are known as excess distributions are subject to special US tax rules, and "excess distributions" are distributions that are greater than 125 percent of the average distributions received from the PIVOT during the three preceding tax years or holding period of less. Pivot gains and excess distributions are not eligible for capital gains treatment and must be allocated per day to prior years in the holding period. Amounts allocated to prior years in the holding...