What is Mark-to-Market Election?
An election allowing US shareholders to recognize annual gains and losses on marketable PFIC stock, avoiding the default PFIC tax regime.
Definition
The mark-to-market election under Section 1296 allows US shareholders of PFICs to annually recognize gain or loss based on changes in the fair market value of marketable PFIC stock. Gains are treated as ordinary income, and losses (limited to previously recognized gains) are treated as ordinary deductions. This election is available only for PFIC stock regularly traded on a qualifying exchange, making it an alternative to the QEF election.
Who Needs to Know This?
US persons holding PFIC stock that is traded on a qualifying exchange and who cannot or choose not to make a QEF election.
Key Deadline
Election made on Form 8621 filed with timely return for the first year desired
Potential Penalties
N/A - this is an elective benefit
Related Forms
Common Mistakes to Avoid
- 1Trying to elect mark-to-market for non-marketable PFIC stock
- 2Not recognizing losses are limited to net mark-to-market gains
- 3Confusing with the Section 475 mark-to-market for traders
- 4Not making the election in the first eligible year
Related Terms
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