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I posted a request for Help/Assistance on the subject
earlier, but got no reply, so i thought i'd try again
but this time make my question easier to understand.

I'm confused about what to do in Part Two of Form 8621:

"Return by a Shareholder of a Passive Foreign Investment Company or Qualified Fund"

I'll just explain the facts Re. one of
the foreign co.'s:

The co. is:
(NAT) Nordic American Tanker Shipping Limited
Bought 100 shares on May 9, 2002' at $14.10 per share
Held 235 Days in 2002'
Received only two dividend distributions = $65

Form 8621
Part Two

(1a)I found it easy to compute & come up with the amount
of the Pro Rata Share of the Ordinary Earnings of
the QEF needed for line 1a

Its line 2a that is confusing to me!
"Enter your pro rata share of the total net capital" ______



To compute/find the amount for line 2a the instructions
in "PFIC Annual Information Statement" that was sent too me by the foreign companies, states:

The total amount of the distributions
exceeded the sum of Nordic American's earnings & profits
for the Taxable Year & Nordic Americans's earnings & profits
accumulated in prior years.
(Here comes the part where i get confused). Accordingly, 47.01% of each distribution is a dividend, and 52.99%
of each distribution is a return of capital.

Now; the total amount of distributions that i received
from Nordic in 2002' was two payments = $65

So; to get the figure i need for the pro rata share of the
total net capital gains of the QEF on line 2a of the
Form 8621 -- I need to do what??

Should i do the following:

$65 X 47.01% = 30.5565 X 52.99% = 16.191889

Is 16.19 the pro rata share of the total net
capital gain of the QEF??

Or is it:

$65 X 52.99% of each distribution is a return of capital
= 34.4435

Is 34.44 the pro rata share of the total net
capital gain of the QEF??

**** The instructions (too me) seem to be saying two
things at once in that last sentance; i'm not sure how
to come up with that pro rata share of capital gains!!!!

CAN ANYBODY HELP??????? Thanks Capt!


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No. of Recommendations: 3
I'll tell you what I'd do if I were in your shoes. Mind you, this is a best guess, based on 1) the information given to you by NAT, 2) form 8621 and its instructions.

(But first an aside: I'd never heard of Form 8621. It isn't listed in the 1040 booklet as a form you can get by fax. It doesn't appear in the TaxWise program I used as a TCE volunteer. It does show up on the IRS website, of course, but then so a lot of other weird forms, like 2290EZ, Heavy Vehicle Use Tax Return for Filers with Single Vehicle. How do you people find investments that trigger forms like these? Good grief! I've added PFICs and QEFs to my list of investments to avoid like the plague, joining oil/gas pipeline partnerships.)

Ok, back to your problem. NAT told you that their earnings (and earnings retained from earlier years) were insufficient to support their distributions to shareholders. Consequently, only 47.01% of what you received is treated as a (taxable) dividend. The remaining 52.99% is a return of capital, which means they're giving you your own money back. A return of capital is not taxed, but instead reduces your basis. (But if they return enough capital to reduce your basis to zero, any subsequent return of capital is taxed as a capital gain. I assume that hasn't happened here...)

So - I would put $61 on line 1a. That's 47.01% of the $130 you received. I would put zero on line 1b, and so 1c is just $61, and is included on 1040 line 9, dividend income.

I would put zeros on lines 2a thru 2c. The company didn't have any capital gains. The missing $69, which is that return of capital, just reduces your basis in the stock. When you sell the stock, you'll essentially pay tax on this $69 - either as a short or long term gain, or as a smaller loss...

---

Again, this is just a guess. It's what I'd do, and if an IRS man came calling, my explanation would be that it made sense to me. On the other hand, if you do it and subsequently wind up in a federal prison, I don't want to hear about it.

Lorenzo
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I'm confused about what to do in Part Two of Form 8621:

"Return by a Shareholder of a Passive Foreign Investment Company or Qualified Fund"

I'll just explain the facts Re. one of
the foreign co.'s:

The co. is:
(NAT) Nordic American Tanker Shipping Limited
Bought 100 shares on May 9, 2002' at $14.10 per share
Held 235 Days in 2002'
Received only two dividend distributions = $65
...


This may be a dumb question, but why do you think you have to file Form 8621?

As far as I can tell NAT runs an operating business of purchasing and leasing oil tankers. It does not appear to be a PFIC. I think what may be confusing you is that dividend income from foreign corporations is considered to be Passive Income for purposes of the Foreign Tax Credit calculations. Personally, I've never filed this form and I suspect not many posters on this board have either.

Convince me that you need to file this form and I'll try to help you through it.

Ira
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Ira & captbuddha,

Given Ira's comment (that maybe NAT wasn't a PFIC at all) I looked around a bit further. I found an SEC filing (a 6-K) dated Feb 14, in which NAT states unequivocally that it is a PFIC, and that shareholders who are U.S. taxpayers should file form 8621 with their tax returns.

Moreover, p.4 of that filing gives details on calculating pro rata shares of earnings and net gain. As captbuddha notes, the first one is easy - they provide a formula:

(no. shares) X $.634619 X (number of days owned)/365

and since captbuddha owned his 100 shares for 235 days, that comes to $40.86. I guess that's the number he wants on line 1a.

As for the gain, look more closely, captbuddha! Paragraph 2(ii) says that your share of the net capital gain is zero.

So - my previous guess was half right (the gain is zero). I confess I don't understand about the 47.01/52.99 split between dividend income (which should be taxable) and return of capital (which is not). The paragraph which explains those numbers clearly says that 47.01% of each distribution (the last two of which captbuddha received, for a total of $65) is dividend income, the rest return of capital. At this point, it's a mystery to me how you put these numbers together. On the one hand, the formula suggests that $40.86 is a taxable dividend. At the same time, the paragraph says that $30.56 (47.01% of $65) of what he received is dividend income.

As I said in my prior post, I will be sure to avoid PFICs and QEFs henceforth.

Lorenzo
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Thanks for feedback Re. my question(s)!

I just finished talking to two different IRS individuals
this morning on the very same. It seems that i only
have to fill out lines 1a through 2c "Only" for being
a shareholder of a QEF.

And it isn't until line 3b. that a request is made to:

"Enter the total amount of cash & the fair market value
of other property distibuted or deemed distributed to
you during the tax year of the QEF"

So; it looks like i didn't need to use the final
math instruction that was given by the PFIC
Annual Information Statement!

So; $40.86 is all that's needed to be added to dividend
income; that required on line 9 of the 1040!

**************Thanks again! captbuddha
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Given Ira's comment (that maybe NAT wasn't a PFIC at all) I looked around a bit further. I found an SEC filing (a 6-K) dated Feb 14, in which NAT states unequivocally that it is a PFIC, and that shareholders who are U.S. taxpayers should file form 8621 with their tax returns.

Yup. I'm convinced. As to the rest of Lorenzo2's post... I agree with him... I'm not going anywhere near PFICs as an investment in my portfolio.

Ira
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