PFICs Explained for Expats in America

2026-01-19

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In this episode of Abroad in America, host Jimmy Miller, founder of Baobab Wealth Abroad, tackles one of the most confusing and punishing corners of the U.S. tax code for expats: PFICs (Passive Foreign Investment Companies). What might have been perfectly normal investments back home—mutual funds, ETFs, investment trusts, even some retirement accounts—can suddenly become some of the most complex and harshly taxed assets once you’re a U.S. tax resident.Jimmy breaks down what a PFIC actually is in IRS t...

In this episode of Abroad in America, host Jimmy Miller, founder of Baobab Wealth Abroad, tackles one of the most confusing and punishing corners of the U.S. tax code for expats: PFICs (Passive Foreign Investment Companies). What might have been perfectly normal investments back home—mutual funds, ETFs, investment trusts, even some retirement accounts—can suddenly become some of the most complex and harshly taxed assets once you’re a U.S. tax resident.

Jimmy breaks down what a PFIC actually is in IRS terms and what it looks like in real life, why the U.S. cares so much about foreign investment companies, and how rules that were designed to stop tax evasion end up hitting ordinary expats with legacy portfolios from home. He then walks you through how PFICs are reported, why Form 8621 has such a fearsome reputation, and what happens if you’ve owned these investments for years without knowing any of this.

You’ll also hear how PFICs fit into the bigger picture of worldwide taxation—that once you become a U.S. tax resident, the IRS wants to know about income and investments from anywhere on the planet. As always, Jimmy balances clarity with reassurance: yes, PFICs are complicated and sometimes expensive to fix, but there are options, and you’re not the first expat to discover this late.

In this episode, you’ll hear:

What a PFIC (Passive Foreign Investment Company) is in IRS language and what it really means for expats in practice
Common investments that may be treated as PFICs, including foreign mutual funds, ETFs, investment trusts, and some foreign retirement accounts
Why the U.S. created PFIC rules in the first place and how anti–tax evasion laws ended up impacting everyday expats
How worldwide income and asset reporting works once you become a U.S. tax resident
Why PFICs are taxed so harshly and why Form 8621 is one of the most dreaded forms in cross-border tax
The three main PFIC reporting methods: the default “excess distribution” regime, the QEF election, and the mark-to-market election
How failing to report PFICs can trigger other penalties, interest, and never-closing statute of limitations issues on your tax return
Why most expats who discover PFIC issues late are not treated like tax evaders—and why addressing the problem early makes it easier and cheaper

PFICs are one of the biggest curveballs the U.S. tax system throws at expats, turning normal foreign investments into something that needs specialist attention. But with the right knowledge and support, they’re a problem you can understand and manage—not a reason to panic or give up on life in America.

If you found this episode helpful, share it with another expat who still holds investments back home and may have never heard the term PFIC before.

In the next episode, Jimmy lightens things up by taking a playful look at American culture—why Americans can seem loud, enthusiastic, and supersized—and what makes life here so uniquely fascinating for expats.

Until then: stay informed, stay compliant, and keep exploring.