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Strategies & Market Trends : Value Investing
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To: Paul Senior who wrote (79098)2/4/2026 8:46:20 PM
From: E_K_S  Read Replies (2) of 79139
 
Didn't know about PFIC's. Almost as bad as MLP's. I own SLV but was looking at PSLV because they hold 100% of the physical.

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Holding PSLV in a taxable account creates significant tax complications due to its PFIC status:

The PFIC Tax Trap Without making an election, PFIC taxation is punitive:

  • Excess distribution treatment: When you sell or receive certain distributions, gains are spread back over your holding period
  • Highest ordinary income rates apply: Taxed at the highest marginal rate for each year
  • Interest charges: The IRS adds an interest charge on the "deferred" tax for prior years
  • No long-term capital gains treatment: You lose the beneficial 0-20% capital gains rates
  • No tax-loss harvesting benefits: Losses don't receive favorable treatment
Your Options (Elections) 1. QEF Election (Qualified Electing Fund)
  • PSLV provides the annual information needed for this
  • You report your proportionate share of the trust's income annually (even if not distributed)
  • Allows long-term capital gains treatment on eventual sale
  • Catch: Must file Form 8621 annually; election must be made in first year or you need a retroactive election (complex)
2. Mark-to-Market Election
  • Report annual gains/losses based on year-end value changes
  • Gains taxed as ordinary income; losses treated as ordinary (up to prior gains)
  • Simpler than QEF but no capital gains treatment
  • Requires annual Form 8621
3. Default (No Election)
  • Avoid this - it's the worst tax treatment
  • Only makes sense if you're certain of selling at a loss
Practical Reality Most tax professionals recommend:

  • Make the QEF election in year one if holding PSLV in taxable accounts
  • File Form 8621 every year (failure to file can keep the statute of limitations open indefinitely)
  • Keep meticulous records
Better alternatives for taxable accounts: Many investors choose SLV (US-based silver ETF) or physical silver to avoid PFIC complexity, even though PSLV offers actual allocated bullion.
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