What does 'mark-to-market' mean for a PFIC and when should I elect it?

A PFIC, or passive foreign investment company, such as most foreign mutual funds, is taxed harshly by default under the punitive excess-distribution regime, which spreads gains back over your holding period and adds interest charges. The mark-to-market election lets you instead report the fund's annual increase in value as ordinary income each year, and deduct decreases to the extent of prior gains, avoiding the interest-charge mechanism. It is only available for PFIC shares that are regularly traded on a qualified exchange, which many foreign mutual funds are not. The alternative is a QEF election, which requires the fund to supply detailed annual information most foreign funds will not provide. For many immigrants the cleanest fix is simply to avoid PFICs by holding U.S.-domiciled funds. See Form 8621 and consult a cross-border tax pro.