Option 3: Excessive Distribution Method

Navani quotes, "This is a default election. If you opt out of all other options, you will be taxed as per this option, which is also the most taxing."

Here, if you have not filled up form 8621 for PFIC holdings, then you will have to follow the given procedure. For example - you have not sold your PFIC units for around 10 years and also not received any distribution during this period. But the year you sell them, you get a gain of $100. Your gains distributed over 10 years will amount to $10 for each year. As you had not paid taxes on this $10, you will end up paying taxes on this $10, with additional interest for late payment. You then will have to fill part IV of form 8621.