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The short answer
A US person who holds a Nigerian fund that is a PFIC generally files a separate Form 8621 for each fund each year, attached to the tax return by its due date including extensions. Under the default rules, distributions above 125% of the previous three years' average, and all gain on sale, are "excess distributions" spread over your holding period with tax and interest on earlier years. The QEF and mark-to-market elections that soften this need fund information or exchange trading that Nigerian unit trusts rarely provide.
Who files
The IRS instructions for Form 8621 (revised December 2025) say that "generally, a U.S. person that is a direct or indirect shareholder of a PFIC must file Form 8621" for each tax year it receives certain distributions, recognises gain on a disposal, reports QEF or mark-to-market income, makes an election, or is otherwise required to under section 1298(f). The instructions add that "a separate Form 8621 must be filed for each PFIC": three Nigerian funds means three forms. Whether a Nigerian fund is a PFIC at all is covered in is a Nigerian mutual fund a PFIC.
The default regime, step by step
With no election, the fund is a "section 1291 fund". The instructions set out the mechanics:
- Find the excess distribution. It is the part of this year's distributions greater than 125% of the average you received in the three previous years (or your shorter holding period). Distributions in your first year of holding are not excess distributions.
- Spread it over your holding period. Each day you held the shares gets an equal share.
- Current year and pre-PFIC years. These portions are taxed as ordinary income this year.
- Earlier PFIC years. These portions are not added to income but carry a separate tax and an interest charge under section 1291(c).
- Sale. Gain on disposing of a section 1291 fund is treated entirely as an excess distribution.
Worked example (illustrative figures)
| Year | Distribution in dollars |
|---|---|
| Year 1 | $100 |
| Year 2 | $120 |
| Year 3 | $140 |
| Year 4 (this year) | $300 |
The three-year average is ($100 + $120 + $140) ÷ 3 = $120. 125% of that is $150. The excess distribution this year is $300 − $150 = $150, which is spread over your holding period; the other $150 is taxed as an ordinary distribution. If you later sell the fund at a gain, the whole gain goes through the same spreading. Real figures depend on daily holding periods and exchange rates on each date.
The elections, and why they rarely help here
- QEF election. You include your share of the fund's ordinary earnings and net capital gain each year, at ordinary and long-term capital gain rates. The instructions say "the PFIC must provide the shareholders with a PFIC Annual Information Statement". Without that statement you cannot make the election. Ask your Nigerian fund manager, but few are set up to provide it.
- Mark-to-market election. You treat the year-end rise in value as ordinary income each year. It requires "marketable stock", regularly traded on an SEC-registered exchange, the national market system or a qualifying foreign exchange. Open-ended unit trusts bought from and sold back to the manager generally are not.
- Timing. The QEF election is generally made by the return due date, including extensions, for the first year it applies; late elections need a protective statement or IRS consent.
Exceptions and relief
- Small holdings. You need not complete Part I for a section 1291 fund if your aggregate PFIC stock is $25,000 or less on the last day of the year ($50,000 joint), and you had no excess distribution or gain from that fund. This does not lift the tax rules when you do receive a distribution or sell.
- Tax-favoured accounts. PFIC shares held through IRAs, section 529 plans, 401(a) plans and certain tax-exempt organisations are not treated as held by you.
Filing mechanics
The instructions say to "attach Form 8621 to the shareholder's tax return" and file both by the due date, including extensions. If you do not otherwise have to file a return, Form 8621 goes to the IRS Ogden, UT 84201-0201 service center. Values and distributions are reported in dollars; convert naira at the rate on each date from a consistent source (IRS foreign currency page). The fund account also counts toward FBAR and Form 8938 thresholds (IRS comparison page).
What to check first
- A list of every Nigerian fund you hold, including through savings or investment apps.
- Purchase dates, amounts and every distribution or redemption, in naira and dollars.
- Whether any fund can provide a PFIC Annual Information Statement.
- Whether selling now, before more years build up, makes sense with your preparer.
Missed Form 8621s from past years are a reason to talk to a preparer before you sell or file again. See also hiring a preparer who understands Nigerian income and Nigerian money market funds and PFIC rules. This is general information, not tax advice.
Questions people ask
Do I need a separate Form 8621 for each Nigerian fund?
Yes, the form is filed per PFIC, so each fund you hold is reported on its own form.
Is there a minimum below which I do not file Form 8621?
Part I can be skipped for a section 1291 fund if total PFIC stock is $25,000 or less at year-end ($50,000 joint) and there was no excess distribution or gain. Other parts may still apply.
What is an excess distribution?
The part of this year's distributions above 125% of your average for the previous three years, plus all gain on a sale. It is spread over your holding period with tax and interest.
Can I use mark-to-market for a Nigerian unit trust?
Only for marketable stock regularly traded on a qualifying exchange. Open-ended unit trusts sold back to the manager generally do not qualify.
Sources
- IRS: Instructions for Form 8621 (Rev. December 2025) · accessed Oct 2026
- IRS: Foreign currency and currency exchange rates (reviewed 22 May 2026) · accessed Oct 2026
- IRS: Comparison of Form 8938 and FBAR requirements (19 Sep 2026) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.