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KPMG 2026
| Question | Answer |
|---|---|
| Do stock splits affect unrealized? | No |
| Do stock splits affect realized lots sold before or after the stock split date? | Only lots sold BEFORE the stock split date, because lots sold after the stock split date would already be adjusted |
| For wash sales, why is there only an adjustment is there is an unrealized amount? | If the deferred lot rolled into a realized lot, it would net with the gain/loss and be recognized this year. If the deferred lot rolls into an unrealized lot, the loss is deferred until that unrealized lot is sold, hence the deferral adjustment |
| What is a wash sale? | If you sell a security at a loss, and within 30 days before or after that sale buy the same security, the loss is deferred |
| What happens when a wash sale creates a loss deferral? | That loss is rolled into and added to the re-purchased securities cost basis. |
| Why does the loss increasing the re-purchased securities cost basis reduce taxes in the future? | Proceeds - Cost = Gain If cost goes up, then the gain will be lower in future years |
| When a wash sale lot rolls into a re-purchased lot, what happens to the open date? | The deferred loss lots open date is rolled into the re-purchased lots open date. This may change the character of the gain |
| What is substantially identical to a Long Security? | Long Security Long Call |
| What is substantially identical to a Short Security? | Short Security |
| What is substantially identical to a Call? | A Call with the same underlying security and expiration |
| Can a Short Security roll into a Long Security for a wash sale? | No, a short security can only roll into a short position |
| If you closed a short at a loss, and opened a long, does this trigger a wash sale? | No |
| An investor buys 1 share of Apple for $100 The price of Apple falls to $90 the next day, and the investor sells their 1 Apple Share. The next day, the investor buys 1 Apple share back at its current price $92. What happens? | The $10 original loss is deferred In the future, when the investor sells the $92 Apple share, for say $100, this would be a $18 gain. BUT that $10 loss deferral is added to the cost basis of the share, reducing the gain to $8 |
| What is a CFC? | Controlled Foreign Corp Foreign Corp owned more than 50% by US Shareholders |
| What is the nuance with the CFC 50% ownership? | You only add up the US investors that make up 10% or greater at any point during the year |
| What is a CFC statement? | It is given to the investors that invest in a controlled foreign corp. Similar to a K-1 Only partners that owned over 10% at some point during the year will get a statement |
| Is this a CFC? P1 - Foreign 35% P2 - Foreign 15% P3 - US 45% P4 - US 5% | No, b/c you would not count the 5% US SH since they are under 10%. For CFC purposes this would be only 45% US owned, and not a CFC. |
| What type of earnings might a partner have through a CFC? | Subpart F Income Exempt Income Tested Income |
| What is the primary amount of earnings from a CFC? | Tested Income |
| What is Subpart F Income? | Passive income (ex- dividends, interest, rents) and certain types of foreign income that are subject to U.S. taxation |
| So when we provide an investor a CFC statement what are we really providing? | We are saying this is the amount of ordinary dividends, etc. from this CFC that should be reported on your individual tax return |
| What does an investor need to file when they are a >10% ownership in a CFC? | 5471 - the CFC gives you the information, and the responsibility to file Form 5471 lies with the U.S. person |
| Who files an 8865? | Domestic Funds ONLY |
| When does a Domestic Fund need to file an 8865? | If they: 1. Contributed over 100K to a Foreign Partnership 2. Own >10% of a Foreign Partnership |
| Is 8865 or 5471 for ownership of Foreign Corp? | 5471 THINK - ROW offshores |
| Is 8865 or 5471 for ownership of Foreign Partnership? | 8865 THINK - We see on PNSHP returns |
| If you are a Foreign Fund, and you pick up a K-1 from a fund that gives you an 8865 footnote, what do you do? | ONLY domestic partnerships can file the 8865. The foreign partnership would pass through this 8865 footnote, and the first U.S. investor it reaches would file the 8865 return. |
| What if a FOREIGN partnership contributed over 100K to another foreign partnership, or owns over 10% of another foreign partnership? | The foreign partnership would prepare an 8865 footnote on their K-1's. They cannot file the form. The first U.S. person in the chain would take this information and file the form. |
| What do you file if you make a contribution into a Foreign Corporation? | A U.S. person ONLY, would file a form 926 |
| What if you made a contribution into a Foreign Corporation, and that Corporation is also a PFIC? | You need to file both form 926 and 8621. |
| So which form do you file for contribution into a foreign partnership? Contribution into a foreign corporation? | Contribution into a foreign partnership = 8865 Contribution into a foreign corporation = 926/8621 |
| What is the form 8621? | You make an election on this form to decide if you are going to pick up the PFIC income, by making the QEF election, or make a different election |
| What does the QEF election allow? | The U.S. SH of a PFIC to pick up their share of the PFIC's income each year, even if the corp didnt make any distributions |
| Who can make the QEF election? | Only U.S. people |
| What if a foreign partnership is invested in a PFIC? | A Foreign Partnership cannot file an 8621, they would have a PFIC Footnote on their Schedule K-1, and flow through the information until a U.S. person up the chain files an 8621 |
| When do you need to file a 1042? | A U.S. partnership that we prepare a K-1 for has U.S. Dividend Income and/or Interest Income, as well as a Foreign partner |
| What is a Pass-Through-Entity-Tax (PTET)? | A state tax designed to benefit pass-through entities like S-Corps and Partnerships |
| Do Partnerships or S-Corps normally pay federal income tax? | No, the income "passes through" to the partners or shareholders, and they report it and pay taxes on the income on their income tax return |
| How does the 2017 Tax Cuts and Jobs Act, relate to Partnership and S-Corp tax? | The act put a 10K cap on the yearly state and local tax deduction that individuals can claim on their return (SALT Cap) |
| Why is the SALT Cap unfavorable to Partnership or S-Corp Investors? | The investors are typically passed through the income and then pay state and local taxes on the income. But now on their individual tax return, they can only deduct 10K of those taxes. |
| How does the PTET tax work? | To bypass the SALT Cap, the tax allows PT business to pay their taxes through their state's business tax return, instead of on their individual investors returns |
| How does the Pass-Through entity paying taxes at their level, benefit the investors? | The state tax paid is not subject to the $10K SALT Cap, b/c it is considered a business expense, not an individual deduction. The partners/shareholders then get a credit or deduction on their state tax return for their share of the tax the entity paid |
| When we do a PTET Calc and add a footnote to the K-1's, what does the investor do? | We are noting this was the amount of tax actually paid at the partnership level, and this is the amount the investor can take as a credit or deduction on their state tax return |
| When does the Pass-Through entity pay the PTET? | Throughout the tax year, similar to individuals making estimated tax payments April, June, September, December |
| Who is given a PFIC statement? | Investors of a foreign corporation, it's like their version of a K-1 |
| Why do investors of foreign corps, need PFIC statements? | US investors have to pay tax on their world-wide income, so they need this statement |
| How do you identify a Passive Foreign Investment Company? | A foreign entity that has at least 75% of non-business income (such as investments) OR 50% of its assets are held for the production of passive income |
| What are examples of companies that would have business income and not be considered a PFIC, vs. companies that would be considered a PFIC? | A MGMT company would have business income A dry cleaners located in CJ would have business income But the companies that are in CJ that are just there to hold our investments, would probably be a PFIC |
| What are the 2 buckets of income on a PFIC statement? | Ordinary Earnings and Capital Earnings |
| On a PFIC statement, you can have 'Capital Earnings', up to the amount of what? | E&P. Any ST or LT over E&P is reclassed to ordinary. |
| If a fund has taxable loss, what do they PFIC's look like? | They are NONE PFIC's |
| What if a fund has taxable loss, but if you add back the management fee, there is a gain? | That gain is specially allocated to the partners. |
| Ordinary Earnings out of a Foreign Corp, is technically what? | A dividend |
| For PFIC netting purposes, where does 988 go? | Ordinary |
| Why would US investors want to make the QEF election on their PFICS? | It reduces their tax burden. They are agreeing to report their share of the PFIC's income and pay taxes on it annually, rather than being subject to higher tax rates and interest charges when they sell their shares |
| Who must file an FBAR? | A US person that has financial interest or signature authority over foreign financial accounts if the aggregate value of the accounts exceeds 100K at any time during the year |
| Who files a form 8804, and why? | Partnerships to report a pay withholding on ECI income, allocable to foreign partner |
| What is the form 8805? | Form 8804 is accompanied by Form 8805 for each foreign partner. It is provided to each foreign partner to report their share of effectively connected taxable income and the amount of Section 1446 withholding tax paid on their behalf |
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