# Question about reporting PFIC gain on sale



## MM1234 (Apr 8, 2021)

I have been reading through the article regarding reporting the gain on the sale of a PFIC ( Back to basics: How to report gain on the sale of a PFIC - HodgenLaw PC – International Tax ).

My question is, how would this change in the case where:

purchases of the fund were made on several dates
all shares were sold on the same date
the only data available is the total income earned across all shares at the time of sale, and is not traceable to each individual block of shares.
 
For example,
$2000 worth are purchased in January 2019. (block A)
$4000 worth are purchased in June 2019. (block B)
$2000 worth are purchased in January 2020. (block C)
all shares are sold in June 2020, for a total gain of $4000

Would $1000 gain be attributed to 'block A', $2000 gain be attributed to 'block B', and $1000 gain be attributed to 'block C'? And from there, carry on with the calculations as outlined in the article? Is there some other way to treat this?
Thanks in advance for your help!


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## Moulard (Feb 3, 2017)

I am not familiar with PFICs or indeed any capital gains, but given the fact that you have to use USD as your functional currency I imaging it would be a bit more complicated and go something like this...


Convert the block A purchase into USD using the exchange rate on the date of purchase
Do the same for Block B and C
Convert the sale price into USD using the exchange rate on the date of sale (or the date you constructively received the proceeds of the sale if it is not the same as the sale date)
Determine the total capital gain in USD
Proportionally allocate the gain to each block based on its purchase price is USD if you have no other means to divide the gain (eg. each block is reported separately or returned different rates of return)


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## MM1234 (Apr 8, 2021)

Hmm, that's a good point actually. I'll need to factor in the exchange rate from the very beginning instead of just at the end. I presume I can just use the yearly average exchange rates that the IRS provides? ( Yearly Average Currency Exchange Rates | Internal Revenue Service ). Or will I need to go back and track it down per day?


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## Moulard (Feb 3, 2017)

Yes, No and It Depends 

Technically you can use any published rate so long as you use it consistently across your entire return - so yes you can, so long as you also use the average rate for any other income you are reporting, this year, it seems reasonable to use the historic yearly average rate when the assets were purchased.

But... at the same time that the IRS publishes an average yearly rate, they also state in the very first paragraph on that page you link to that 



> In general, use the exchange rate prevailing (i.e., the spot rate) when you receive, pay or accrue the item.


So while they provide it, you aren't really meant to use it.

So it boils down to how are you converting all your other income into USD?

You just need to be consistent.


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## MM1234 (Apr 8, 2021)

In the past, I've always just used the yearly rate for every conversion (salary, interest accrued in a bank account, etc). This year is a bit more complicated with this PFIC liquidation. So could I continue to just use the yearly rate? I know I need to include a 'statement' for line 16 in section V of the PFIC. On that statement would I just have the dollar values already converted into USD, or would I need to show what exchange rate calculations I did all along the way


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## Moulard (Feb 3, 2017)

Sorry, as I said at the outset this is at the edge of my understanding. All I would be able to do is read instructions and try to parse them for you. 

A very quick skim makes no mention of showing how you calculated the gain ... so you may well not need to show how you converted into USD at all -- but again I haven't read the instructions in their entirety.

Personally I would probably provide to the letter what they asked for, and chances are you wouldn't hear a peep more about it.


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## MM1234 (Apr 8, 2021)

All I see in the instructions for the PFIC, under section V, line 16
"Determine the taxation of the excess distribution on a separate sheet and attach it to Form 8621."


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## Moulard (Feb 3, 2017)

and on the form itself it provides a little bit more info...

... attach a statement for each excess distribution and disposition. Show your holding period for each share of stock or block of shares held. Allocate the excess distribution or gain to each day in your holding period. Add all amounts that are allocated to days in each tax year. 

Found this example online for you online it includes a sample statement...



https://www.form8621.com/wp-content/uploads/2018/06/PFIC-Sample-2019.pdf



There may be other examples out there... who knows google may be your friend today. ...


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## MM1234 (Apr 8, 2021)

Thanks for the link. The sample form is quite helpful, and I hadn't run across that yet.
I even called the official IRS helpline and they said that no one in the IRS can help me with that form as it is too complicated for them, go figure... and they recommend I contact a tax attorney.
However, in general they did reiterate what we've discussed here in that the IRS has no official exchange rate, and that I should just make sure that the form/instructions do not say specifically which exchange rate to use (like form 8938 does). 
I take that as confirmation of what you were saying in that it just needs to be consistent, so using the average annual rate across all transactions and calculations would be OK?


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