What is a passive foreign investment company (PFIC)?

A PFIC is a foreign corporation that meets the following criteria: (1) at least 50% of its income is passive income; or (2) it is engaged in the business of investing, reinvesting, owning, holding, or trading in certain types of passive assets. U.S. shareholders of PFICs may be subject to special tax rules and restrictions on their ability to defer taxes on foreign income.

What is an electing fund?

An electing fund is a PFIC that has elected out of the PFIC status. By making this election, the fund becomes a non-PFIC and its shareholders can defer income tax on their pro rata shares of the fund's passive income until such income is distributed as a dividend or otherwise becomes subject to tax.

What information is required on Schedule H of Form 965 (Rev. 01-2021)?

Schedule H of Form 965 (Rev. 01-2021) is used to report section 965(a) inclusions and related deductions for each separate category of income, as well as the foreign taxes paid or deemed paid with respect to those inclusions.

What is a deferral CFC?

A deferral CFC is a controlled foreign corporation that meets both of the following requirements: (1) it is not a passive foreign investment company (PFIC); and (2) it has not been a PFIC in any year when the U.S. shareholder held at least 25% ownership. Deferral CFCs are named because their earnings can be deferred until they become subject to tax.

A Qualified Foreign Equity (QFE) is a foreign corporation that is considered an equity interest in another corporation. A U.S. shareholder of a QEF can make an election to include the foreign corporation's income, deductions, credits, and losses in their income for tax purposes, allowing them to defer taxes on certain passive income until it is distributed as a dividend or otherwise becomes subject to tax.

A Qualified Business Activities (QBA) election allows a U.S. shareholder of a foreign corporation that is not a PFIC to defer income tax on certain passive income earned through the active conduct of a trade or business. To make this election, the foreign corporation must meet specific requirements and the U.S. shareholder must file Form 965 to elect in.

A Controlled Foreign Corporation (CFC) is a foreign corporation in which a U.S. person (such as an individual, partnership, or corporation) owns, directly or indirectly, 25% or more of the voting power or value of the corporation's stock. The U.S. shareholder can be subject to tax on the foreign corporation's income and may have to file Form 965.

What is the purpose of the applicable percentage from a U.S. shareholder pass-through entity on Schedule H of Form 965 (Rev. 01-2021)?

The applicable percentage from a U.S. shareholder pass-through entity on Schedule H of Form 965 (Rev. 01-2021) is used to determine the amount of disallowed taxes with respect to foreign taxes deemed paid in connection with the section 965(a) inclusions from that entity.

What are separate categories of income on Schedule H of Form 965 (Rev. 01-2021)?

Separate categories of income on Schedule H of Form 965 (Rev. 01-2021) include general category income, passive category income, and specific categories of income (such as section 965(c) deductions).

Who needs to file Form 965 (Rev. 01-2021)?

U.S. taxpayers, including corporations and individuals, who have section 951(a)(1), 951A, or 965(a) inclusions during the tax year are required to file Form 965 (Rev. 01-2021).

What is the purpose of Form 965 (Rev. 01-2021) and when should it be filed?

Form 965 (Rev. 01-2021) is used by U.S. taxpayers, including corporations and individuals, to report sections 951(a)(1), 951A, and 965(a) inclusions in their income. This form should be filed with the annual income tax return for the tax year that includes the inclusion amounts.

Do I need to file Form 965 for 2020?

If you were a U.S. shareholder of a controlled foreign corporation (CFC) during the 2020 tax year and such CFC was a deferral CFC, then yes, you need to file Form 965 for that year. You may also need to file Form 965 if there have been changes in your ownership or income from the CFC since the previous tax year.

Form 965

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Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System

Rev. January 2021

[Form 965] This document is instructions for filing Form 965 with the Internal Revenue Service (IRS) related to the inclusion of deferred foreign income upon transition to the participation exemption system. For tax years beginning in 2020, Part I requires filers to report section 965(a) inclusions from pass-throughs and enter the sum on their tax return accordingly. Corporations should enter the total on Form 1120, Schedule C, line 15, column (a). All others see instructions. Part II requires reporting of the 2020 tax year section 965(c) deduction from pass-throughs and entering the sum on the tax return accordingly. Corporations should enter the total on Form 1120, Schedule C, line 15, column (c). Part III includes yes/no questions regarding various elections related to tax liabilities.

Instructions

Form 965 Instructions - Instructions for Form 965, Inclusion of Deferred Foreign Income Upon Transition to Participation Exemption System

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FAQ

What is a passive foreign investment company (PFIC)?
A PFIC is a foreign corporation that meets the following criteria: (1) at least 50% of its income is passive income; or (2) it is engaged in the business of investing, reinvesting, owning, holding, or trading in certain types of passive assets. U.S. shareholders of PFICs may be subject to special tax rules and restrictions on their ability to defer taxes on foreign income.
What is an electing fund?
An electing fund is a PFIC that has elected out of the PFIC status. By making this election, the fund becomes a non-PFIC and its shareholders can defer income tax on their pro rata shares of the fund's passive income until such income is distributed as a dividend or otherwise becomes subject to tax.
What information is required on Schedule H of Form 965 (Rev. 01-2021)?
Schedule H of Form 965 (Rev. 01-2021) is used to report section 965(a) inclusions and related deductions for each separate category of income, as well as the foreign taxes paid or deemed paid with respect to those inclusions.
What is a deferral CFC?
A deferral CFC is a controlled foreign corporation that meets both of the following requirements: (1) it is not a passive foreign investment company (PFIC); and (2) it has not been a PFIC in any year when the U.S. shareholder held at least 25% ownership. Deferral CFCs are named because their earnings can be deferred until they become subject to tax.
What is a QEF?
A Qualified Foreign Equity (QFE) is a foreign corporation that is considered an equity interest in another corporation. A U.S. shareholder of a QEF can make an election to include the foreign corporation's income, deductions, credits, and losses in their income for tax purposes, allowing them to defer taxes on certain passive income until it is distributed as a dividend or otherwise becomes subject to tax.
What is a QBA?
A Qualified Business Activities (QBA) election allows a U.S. shareholder of a foreign corporation that is not a PFIC to defer income tax on certain passive income earned through the active conduct of a trade or business. To make this election, the foreign corporation must meet specific requirements and the U.S. shareholder must file Form 965 to elect in.
What is a CFC?
A Controlled Foreign Corporation (CFC) is a foreign corporation in which a U.S. person (such as an individual, partnership, or corporation) owns, directly or indirectly, 25% or more of the voting power or value of the corporation's stock. The U.S. shareholder can be subject to tax on the foreign corporation's income and may have to file Form 965.
What is the purpose of the applicable percentage from a U.S. shareholder pass-through entity on Schedule H of Form 965 (Rev. 01-2021)?
The applicable percentage from a U.S. shareholder pass-through entity on Schedule H of Form 965 (Rev. 01-2021) is used to determine the amount of disallowed taxes with respect to foreign taxes deemed paid in connection with the section 965(a) inclusions from that entity.
What are separate categories of income on Schedule H of Form 965 (Rev. 01-2021)?
Separate categories of income on Schedule H of Form 965 (Rev. 01-2021) include general category income, passive category income, and specific categories of income (such as section 965(c) deductions).
Who needs to file Form 965 (Rev. 01-2021)?
U.S. taxpayers, including corporations and individuals, who have section 951(a)(1), 951A, or 965(a) inclusions during the tax year are required to file Form 965 (Rev. 01-2021).
What is the purpose of Form 965 (Rev. 01-2021) and when should it be filed?
Form 965 (Rev. 01-2021) is used by U.S. taxpayers, including corporations and individuals, to report sections 951(a)(1), 951A, and 965(a) inclusions in their income. This form should be filed with the annual income tax return for the tax year that includes the inclusion amounts.
Do I need to file Form 965 for 2020?
If you were a U.S. shareholder of a controlled foreign corporation (CFC) during the 2020 tax year and such CFC was a deferral CFC, then yes, you need to file Form 965 for that year. You may also need to file Form 965 if there have been changes in your ownership or income from the CFC since the previous tax year.

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Tax forms

Form 965 is one of Tax forms that are documents used to report income, deductions, and tax liability to the relevant tax authority. These forms are an essential part of the tax filing process and are used to ensure individuals and businesses comply with tax laws and accurately calculate their tax obligations.

The specific tax forms required can vary depending on factors such as an individual's filing status, sources of income, and the country's tax laws. However, here are some common types of tax forms:

Individual Income Tax Forms: These forms, such as the 1040 series in the United States, are used by individuals to report their income, claim deductions and credits, and calculate their tax liability.

Business Tax Forms: Businesses, including sole proprietorships, partnerships, corporations, and self-employed individuals, may have to file various forms to report their income, expenses, and taxes owed. Examples include Schedule C (Profit or Loss from Business) and Form 1120 (U.S. Corporation Income Tax Return).

Employment Tax Forms: Employers are required to report employee wages and withhold and remit payroll taxes. Forms such as W-2 (Wage and Tax Statement) and 941 (Employer's Quarterly Federal Tax Return) are used for this purpose.

Investment and Retirement Account Forms: These forms are used to report investment income, capital gains, and losses, as well as contributions and distributions from retirement accounts. Examples include Form 1099-DIV (Dividends and Distributions) and Form 5498 (IRA Contribution Information).

Estate and Gift Tax Forms: When a person passes away or makes significant gifts, specific forms such as Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) and Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) are used to report and calculate any applicable estate or gift taxes.

It is important to note that tax laws and forms can change over time, so individuals and businesses should consult the relevant tax authority or seek professional tax advice to ensure compliance with the current requirements.

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