Your conclusion is:
“All of these tax compliance rules begs a very important question for a USC who is considering renouncing their U.S. citizenship. The issue arises if they have had investments in PFICs during the last five years. “If the USC has not been complying with IRC Section 1297 regarding PFICs, how can the taxpayer ever certify under penalty of perjury ” . . . that he has met the requirements of this title for the 5 preceding taxable years. . . [for purposes of Section 877(a)(2)(C)]“?”
Your post demonstrates beyond a shadow of a doubt whiy long term U.S. citizens must renounce U.S. citizenship. Leaving aside the S. 877 certification test, the idea of applying these rules to non-U.S. mutual mutual funds bought by Americans residing in the country where the fund is incorporated is not just stupid – it’s actually sick. Then we add to this the fact, that foreign mutual funds were not even considered to be PFICS until recently, coupled with the willingness to compute the interest charge on years before they were even understood to be PFICS is an embarrassment to U.S. law, an embarrassment to the IRS and an embarrassment to the lawyers and accountants who play a role in the “PFIC Confiscation of Assets”.
To your point of “can mutual fund owners ever certify 5 years of tax compliance”? Probably not. But, the U.S. tax code so complex that nobody could ever certify the 5 years anyway.
Main point is to NOT be a U.S. citizen.
More on “PFICs” and their Complications for USCs and LPRs Living Outside the U.S. – -(What if there are No Records?)
The statutory rules of PFICs are set forth in 26 U.S. Code § 1297 – Passive foreign investment company. The U.S. Treasury and IRS also published new regulations in January 2014 on PFICs.
United States Citizens living overseas, whether or not they are “Accidental Americans”, as well as lawful permanent residents (LPRs) living outside the U.S. generally have the burden of proof under U.S. tax law to show they complied with U.S. law. Indeed, when the Internal Revenue Service (IRS – the U.S. revenue authority) makes a tax assessment against an individual, the law generally carries with it a “presumption of correctness” in favor of the IRS.
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