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 information about an individual's or business's income, deductions, and tax liability to the relevant tax authority. These forms are necessary to comply with tax laws and fulfill tax obligations. Tax forms vary depending on the country and the specific tax requirements in place. Here are some common types of tax forms:

Individual Tax Forms: These forms are used by individual taxpayers to report their personal income and claim deductions, credits, and exemptions. Examples include the 1040 form in the United States or the Self-Assessment Tax Return form in the United Kingdom.

Business Tax Forms: Business tax forms are used by companies, partnerships, or self-employed individuals to report their business income, expenses, and other tax-related information. Examples include the Schedule C form (Profit or Loss from Business) in the United States or the CT600 form (Company Tax Return) in the United Kingdom.

Payroll Tax Forms: These forms are used by employers to report the wages, salaries, and taxes withheld from their employees' paychecks. Examples include the W-2 form in the United States or the P60 form in the United Kingdom.

Sales Tax Forms: Sales tax forms are used by businesses to report and remit sales tax collected on taxable goods or services. The specific sales tax forms vary by jurisdiction.

Value Added Tax (VAT) Forms: VAT forms are used in countries that impose a value-added tax to report and remit VAT collected on sales and claim VAT credits for purchases. Examples include the VAT return forms used in many countries.

Estimated Tax Forms: Estimated tax forms are used to report and pay estimated taxes on income that is not subject to withholding, such as self-employment income or investment income.

These are just a few examples of the numerous tax forms that may exist. The specific forms required depend on the tax laws and regulations in your country or jurisdiction. It is important to consult the tax authority's guidelines or seek professional advice to determine which forms are applicable to your situation.

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