If you sold every share of that PFIC before year-end, you cannot make a new section 1296 MTM election for those shares; unless you make a valid first-year QEF election, section 1291 applies.
“I am a US taxpayer holding foreign mutual funds. Can I make a Mark-to-Market (MTM) election for PFIC stock that I acquired and disposed of in the same year (my first year of acquisition), or does it default to Section 1291 rules?”
Summary
Under the default branch, a profitable sale is still reportable, but your same-year holding period keeps the whole section 1291 allocation in the current year. That means ordinary income, without a section 1291 deferred-tax or interest charge attributable to earlier PFIC years [2][3].
For the shares you sold, the available route depends on whether you can make a timely first-year QEF election; a new MTM election is not available if none of that PFIC’s shares remained at year-end.
You cannot make a new section 1296 for shares of that PFIC that you acquired and completely disposed of before tax-year end. The regulation requires you to own in the PFIC on the last day of the year, and the election’s scope is stock owned when the election is made or acquired afterward [1].
This can be an alternative if the fund supplies a valid . Make Election A by your return’s due date, including extensions; when the PFIC is a for every PFIC year in your holding period, section 1291 does not apply to the disposition [4][5].
If no valid first-year QEF election is made, the sold shares remain a . Sale gain is treated as an ; because your entire holding period was in the disposition year, all of that gain is current-year ordinary income and there is no prior-PFIC-year section 1291 tax or interest component [2][3].
Treat each foreign fund corporation separately: owning another PFIC at year-end does not make the already-sold shares eligible for MTM [1][7].
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Next steps
These steps determine whether the QEF alternative is available and, if not, report the same-year sale correctly under section 1291.
Before completing Form 8621
Separate the records for each foreign fund
Prepare a separate file for each PFIC because the IRS requires a separate Form 8621 for each one [7]. If the balance for the fund in question was zero at year-end, do not check the section 1296 Election C box for the disposed shares. There is no filing or fee at this record-sorting step.
Requirements
By your return due date, including extensions
Use Election A only if the fund supplied QEF information
If the statement is available, use Form 8621 Election A and the statement’s figures for the QEF income section. The election must be made by the due date, including extensions, for the first tax year to which it applies [4]. Form 8621 is available at https://www.irs.gov/pub/irs-pdf/f8621.pdf; the IRS instructions list no separate Form 8621 filing fee.
Requirements
If no valid first-year QEF election exists
Otherwise report the sale in Part V
Complete Form 8621 Part V. Put disposition gain on line 15f and attach the day-allocation calculation for lines 16a and 16b. Because all holding-period days were in the disposition year, the gain is allocated to the current year, entered on line 16b, and reported as ordinary income; there is no earlier PFIC-year amount for the section 1291 tax-and-interest calculation [2][3]. If the sale produced a loss, do not use that loss to reduce section 1291 gains; report it under the otherwise applicable Code rule [3].
Requirements
At filing
Attach Form 8621 to your return
Attach each Form 8621 to your federal return and file both by that return’s due date, including extensions. There is no separately listed IRS fee for the attachment. If you are not otherwise required to file a return, mail Form 8621 to Internal Revenue Service Center, Ogden, UT 84201-0201 [7].
Requirements
Legal sources
This answer is grounded in Internal Revenue Code sections 1291 and 1296, Treasury Regulations 1.1296-1 and 1.1296-2, and the December 2025 IRS Form 8621 instructions.
26 CFR 1.1296-1
A new MTM election requires year-end ownership and does not reach shares disposed of before the election.
§1.1296-1(b)(3), (h)(1)(i), (h)(1)(iii)
A United States person that owns marketable stock in a PFIC, or is treated as owning marketable stock under paragraph (e) of this section, on the last day of the taxable year of such person, and that wants to make a section 1296 election, must make a section 1296 election for such taxable year on or before the due date (including extensions) of the United States person's income tax return for that year. A United States person's section 1296 election with respect to stock in a foreign corporation applies to all marketable stock of the corporation that the person owns directly, or is treated as owning under paragraph (e) of this section, at the time of the election or that is subsequently acquired. A late section 1296 election may be permitted only in accordance with § 301.9100-3 of this chapter.
26 USC 1291(a)
Without a valid alternative election, gain from selling PFIC shares is processed under the section 1291 excess-distribution rules.
§1291(a)(2)
If the taxpayer disposes of stock in a passive foreign investment company, then the rules of paragraph (1) shall apply to any gain recognized on such disposition in the same manner as if such gain were an excess distribution.
Instructions for Form 8621
The instructions explain how to report the sale and why a holding period entirely within the current year produces ordinary income but no prior-year PFIC tax component.
Part V, lines 15f and 16a–16f
Gain recognized on the disposition of stock of a section 1291 fund is treated as an excess distribution. Loss realized on the disposition of stock of a section 1291 fund is not taken into account under section 1291 and thus, for example, does not reduce the amount of total gain subject to section 1291. However, the loss may be recognized under another provision of the Code and reported accordingly. Divide the amount on line 15e(2) or 15f, whichever applies, by the number of days in your holding period. The holding period of the stock is treated as ending on the date of the distribution or disposition. Determine the amount allocable to each tax year in your holding period by adding the amounts allocated to the days in each such tax year. Add the amounts allocated to the pre-PFIC and current tax years. Enter the sum on line 16b. This amount is treated as ordinary income (for example, individuals and corporations should enter this amount on the “other income” line of their tax return). Determine the increase in tax for each tax year in your holding period (other than the current tax year and pre-PFIC years).
Instructions for Form 8621
A first-year QEF election requires timely filing and information supplied by the fund.
Election A; PFIC Annual Information Statement
Generally, a U.S. person that owns stock in a PFIC, directly or indirectly, may make Election A to treat the PFIC as a QEF. Generally, a shareholder must make the election to be treated as a QEF by the due date, including extensions, for filing the shareholder's income tax return for the first tax year to which the election will apply (the “election due date”). For each year of the PFIC ending in a tax year of a shareholder to which the QEF election applies, the PFIC must provide the shareholders with a PFIC Annual Information Statement.
26 USC 1291(d)(1)
Section 1291 is switched off when the company was a QEF for every applicable PFIC year in the taxpayer’s holding period.
§1291(d)(1)
This section shall not apply with respect to any distribution paid by a passive foreign investment company, or any disposition of stock in a passive foreign investment company, if such company is a qualified electing fund with respect to the taxpayer for each of its taxable years—(A) which begins after December 31, 1986, and for which such company is a passive foreign investment company, and (B) which includes any portion of the taxpayer's holding period.
26 CFR 1.1296-2
The regulation defines which PFIC investments are eligible for an MTM election.
§1.1296-2(a)–(b)
For purposes of section 1296, the term marketable stock means—(1) Passive foreign investment company (PFIC) stock that is regularly traded, as defined in paragraph (b) of this section, on a qualified exchange or other market, as defined in paragraph (c) of this section; (2) Stock in certain PFICs, as described in paragraph (d) of this section; and (3) Options on stock that is described in paragraph (a)(1) or (2) of this section, to the extent provided in paragraph (e) of this section.
Instructions for Form 8621
You file separately for each PFIC and attach each form to your timely tax return.
Who Must File; When and Where To File
A separate Form 8621 must be filed for each PFIC in which stock is held directly or indirectly. Attach Form 8621 to the shareholder's tax return (or, if applicable, partnership or exempt organization return) and file both by the due date, including extensions, of the return at the Internal Revenue Service Center where the tax return is required to be filed. If you are not required to file an income tax return or other return for the tax year, file Form 8621 directly with the Internal Revenue Service Center, Ogden, UT 84201-0201.
These are the official Code, Treasury regulation, and IRS form rules published on the cited dates; tax rules and forms can change.
This is general information about official tax processes, not legal advice, and SettleKit is not a law firm.
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