Sell or Hold Foreign Mutual Funds: A Practical Guide for Immigrants

(UNITED STATES) — If you’re a U.S. tax resident who owns Foreign Mutual Funds, you may have a yearly U.S. filing obligation for each fund under the IRS PFIC rules, often using Form 8621.

For many immigrants and NRIs, this issue shows up after a move to the U.S. The funds were bought back home long before U.S. tax residency began. But once you become a U.S. tax resident, foreign pooled investments can turn into a recurring compliance project.

This filing guide is for tax year 2026 (returns filed in 2027) and is current as of January 18, 2026.

Eligibility: who needs to file Form 8621 (and when)

You’re the typical Form 8621 filer if all of the following are true:

• You are a U.S. tax resident for 2026 (green card test or substantial presence test).
• You owned shares in a PFIC during 2026.
• You had a PFIC event in 2026, or you’re in an election regime that requires annual reporting.

For immigrants, the key point is timing. PFIC exposure usually begins when you become a U.S. tax resident, not when you bought the fund.

⚠️ Warning: Many non-U.S. mutual funds and ETFs are PFICs. India, Canada, and the UK are common trouble spots for new U.S. residents.

What typically counts as a PFIC for immigrants and NRIs

In plain language, a PFIC is usually a non-U.S. pooled investment that mainly earns passive income. Foreign mutual funds and many foreign ETFs fit this pattern.

Common examples include funds sold in markets such as India, Canada, and the UK/EU.

• India: “regular” mutual funds and many ELSS-style funds
• Canada: many Canadian mutual funds held in non-registered accounts
• UK/EU: many non-U.S. funds marketed as “UCITS” funds

Quick checklist: do you likely have a PFIC filing requirement?

Use this as a first-pass screen. A tax pro may still find filing is needed.

Why this matters: PFIC reporting is usually per fund, not per account. Five funds can mean five Forms 8621.

1) Core PFIC tax rules and why they matter

PFIC rules can be harsher than the rules for U.S. mutual funds.

What makes PFIC taxation feel “punitive”:

• Gains can be pushed into ordinary income treatment, rather than long-term capital gain rates.
• The “excess distribution” rules can add an interest charge for tax treated as deferred into earlier years.
• Recordkeeping is fund-by-fund, and can continue for years.

The basic PFIC definition (in IRS terms)

A foreign corporation is generally a PFIC if it meets either test in a tax year:

• Income test: at least 75% of gross income is passive, or
• Asset test: at least 50% of assets produce passive income.

Foreign mutual funds often meet one or both tests.

Form 8621 basics

Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund) is the primary PFIC reporting form. You often file one per PFIC.

Form 8621 can be used to:

• Report a disposition or distribution under the default regime
• Make or maintain elections (QEF or mark-to-market)
• Report annual income inclusions under those elections

Compliance cost is part of the real-world decision. Even when tax due is small, prep time and data chasing can be material.

Authoritative starting points include:

• IRS Form 8621 and instructions (via irs.gov/forms-pubs)
• IRS Publication 519 (U.S. Tax Guide for Aliens): IRS Publication 519 (PDF)

2) When selling foreign mutual funds often makes sense

Selling is not always “best,” but it is often the simplest path for new U.S. residents.

A common planning window: before U.S. tax residency starts. If you sell before becoming a U.S. tax resident, future U.S. PFIC reporting may be avoided for those holdings. This is a timing issue tied to when residency begins, not your visa label.

This comes up for people such as:

• New H-1B or L-1 arrivals who bought funds years earlier
• Students on F-1 who later switch status and become residents
• NRIs returning to the U.S. after years abroad

When the compliance load outweighs the investment case: Many readers realize the ongoing work is not worth it for smaller positions, especially when there are multiple funds and reinvested dividends.

Selling can also simplify your tax file for future mortgage underwriting and tax transcript requests, and for green card or naturalization planning where consistent tax compliance helps.

Practical execution points:

• Keep trade confirmations, settlement dates, and year-end statements.
• Document exchange rates used if your broker reports in foreign currency.
• Save a screenshot or PDF showing fund identifiers and ISINs.

📅 Deadline Alert: For tax year 2026, most individuals file by April 15, 2027. An extension generally runs to October 15, 2027 using Form 4868.

3) When holding may make sense (with elections)

Holding a PFIC can be reasonable, but usually only when you can support an election strategy and strong documentation.

Situations where holding can be rational include having a long time horizon, large unrealized gains that create home-country friction if sold immediately, reliable access to PFIC data, and acceptance that Form 8621 may be annual and per-fund.

Risks of getting it wrong:

• Late or incorrect elections can lock you into the default regime.
• Missing statements can make QEF impossible in practice.
• Inconsistent reporting can create audit exposure.

Residency duration matters. A short U.S. stay may still require full PFIC compliance while you are a resident.

4) Election options: QEF vs. mark-to-market (MTM)

Two common mitigation paths are QEF and MTM. Each changes how income is reported.

QEF (Qualified Electing Fund)

A QEF approach generally tries to treat the PFIC more like a pass-through of its earnings. The core practical hurdle is the Annual Information Statement from the fund.

Without reliable annual statements, many immigrants cannot use QEF in a clean way.

Mark-to-market (MTM)

MTM is generally limited to PFIC stock that is marketable, meaning it is publicly traded on a qualified exchange. Under MTM, you typically recognize annual gains or losses based on year-end value.

MTM can reduce the interest-charge problem, but it can create annual taxable income even without cash distributions. Timing matters—early action reduces compounding mistakes.

5) Special considerations for immigrants and NRIs

F-1 students and other exempt individuals

Some F-1 and J-1 holders are exempt from counting days for the substantial presence test for a period. That can delay U.S. tax residency. Planning still matters if SIPs or auto-investments keep buying PFICs in the background.

H-1B and L-1 workers

Many H-1B and L-1 workers become U.S. tax residents quickly after arrival. That means PFIC exposure can start earlier than expected.

Also remember: H-1B/L-1 workers generally pay FICA like U.S. workers. That is separate from PFIC, but it affects overall withholding and cash flow.

Green card holders

Green card holders are generally U.S. tax residents until they formally end residency for tax purposes. Physical presence alone may not end the obligation. PFIC positions can become harder to unwind after years of reinvestments.

FATCA and foreign account visibility

PFIC holdings often sit inside foreign brokerage accounts. Those accounts may also trigger other reporting obligations.

• FBAR (FinCEN Form 114) when aggregate foreign accounts exceed $10,000 at any time
• Form 8938 (FATCA) when specified foreign assets exceed applicable thresholds

6) Decision framework (use this before you file)

Use this sequence with your tax professional.

1. Confirm when U.S. tax residency started. This drives whether 2026 is a full-year resident return or dual-status.
2. Inventory each fund. Capture purchase dates, reinvested distributions, splits, and any fund mergers.
3. Check what documents you can actually obtain. If you cannot obtain annual PFIC statements, QEF may not be workable.
4. Decide your tolerance for annual compliance. Per-fund tracking is the rule, not the exception.
5. Compare scenarios at a high level. Selling now versus holding with elections is often a documentation question first.
6. Factor immigration plans. Long-term U.S. residence tends to reward simplification early.

Step-by-step filing process for tax year 2026 (filed in 2027)

This is the practical workflow most filers follow.

Step 1: Determine your U.S. tax status for 2026

Use the Green Card Test or Substantial Presence Test. See IRS Publication 519: IRS Publication 519 (PDF)

Step 2: Identify all PFICs you owned in 2026

List each foreign mutual fund/ETF by name and ISIN or ticker. Confirm whether any are held through another entity.

Step 3: Gather PFIC activity for 2026

For each fund, collect purchases, sales, exchanges, distributions, reinvested dividends, year-end value, and prior-year value if you are in MTM.

Step 4: Prepare Form 8621 for each PFIC (as needed)

Common filing patterns include sale or excess distribution reporting under the default regime, QEF election reporting with annual inclusions, and MTM annual reporting of value changes.

Attach Form 8621 to your Form 1040 package for 2026.

Step 5: Complete the rest of your international reporting (if applicable)

Many PFIC filers also need other international forms when thresholds are met.

• Schedule B (foreign accounts and foreign income questions)
• Form 8938 (FATCA), when thresholds are met
• FBAR (FinCEN 114), filed separately from the tax return

Documents you’ll need (bring these to your tax appointment)

Use this checklist to reduce back-and-forth with your preparer.

• Passport and visa history, plus U.S. entry/exit dates for 2026
• Social Security Number or ITIN
• Year-end and monthly brokerage statements for foreign accounts
• Trade confirmations for all PFIC buys and sells
• Dividend and distribution statements, including reinvested amounts
• Fund Annual Information Statements (if pursuing QEF)
• Year-end fair market value documentation (for MTM)
• Exchange rate support used for conversions
• Prior-year filed Forms 8621, if any
• Prior-year Forms 8938 and FBAR filing history, if any

Deadlines and extension options (tax year 2026)

If you live outside the U.S. on the due date, special rules may apply. Confirm based on your facts.

8) Key data points and references to note

PFIC discussions often turn on a few core concepts and primary IRS references.

• Excess distributions: Certain distributions above a historical average can be treated as “excess.” They can be allocated back over your holding period.
• Per-fund reporting: Form 8621 is often prepared separately for each PFIC.
• Why top-rate treatment can apply: Under the default regime, tax can be computed using the highest rate for each prior year portion, plus an interest charge.
• Why interest can accrue: The rules treat part of the tax as if it should have been paid in earlier years.

Primary IRS references:

• IRS international portal: IRS International Taxpayers
• Forms and publications hub: IRS Forms & Publications
• Publication 519 (aliens and residency): IRS Publication 519 (PDF)
• Publication 901 (tax treaties): IRS Publication 901

Thresholds and rates can change by year, and outcomes depend on facts. Confirm all numbers for tax year 2026 with your preparer.

Practical next steps

• Write a one-page list of every foreign fund you own, with account location and ISIN.
• Mark the date you first became a U.S. tax resident, and whether 2026 is dual-status.
• Decide whether you are aiming to sell, or to pursue QEF or MTM with reliable statements.
• Book a preparer who has direct PFIC experience and prepares Form 8621 routinely.

⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.