PFICs and Private Equity

Summary

This Practice Note provides an overview of the way private equity funds use, or face, passive foreign investment companies or PFICs, specifically focusing on how private equity funds may invest in PFICs. PFICs play more than one role in the world of private equity investing. Private equity funds can benefit by using PFICs as part of their fund structures, as feeders or blockers to serve tax considerations important to U.S. tax-exempt investors and non-U.S. investors. Alternatively, a private equity fund's investment in a portfolio company that is a PFIC can result in adverse tax consequences for U.S. taxable investors in the fund.