Introduction
The Purpose of the PFIC rules – Description of the 1986 Tax Reform Act
The PFIC rules were part of the general tax reform act of 1986. In order to understand the intent of the PFIC rules it is useful to read the general explanation of the tax reform act. The explanation starts at page 1021 of the document or page 1037 of the pdf. It is worth the read …
https://web.archive.org/web/20120507115421/https://www.jct.gov/jcs-10-87.pdf
The discussion of PFICs begins on page 1021 of the document. What is clear is that the purpose of the PFIC rules was to impose punitive taxation on investments in foreign corporations. The PFIC rules were designed to apply when he Subpart F rules did not apply.
In 1986, it was contemplated that taxpayers would be subject to either default (most punitive taxation) under 1291 or the QEF election under 1295 (pay tax on your share of the corporations undistributed profits). The 1296 – Mark to Market option – was created in the mid 1990s.