Tax Traps Await Early SPAC Investors Without Ideal Timing, Luck

Bloomberg Tax
February 25, 2021

Irina Pisareva was quoted in the article, "Tax Traps Await Early SPAC Investors Without Ideal Timing, Luck," [sub. req.] which was published by Bloomberg Tax.

The article discusses how a Special Purpose Acquisition Company (SPAC) can lure big-time investors partly with the promise of being able to cash out more quickly than they can with traditional IPOs. The blind nature of these pools can set up these investors for tax bills that could outsize their gains when they exit, unless they have luck and perfect timing on their side. Irina comments that "all of this could more than double investors’ tax bill."

Shareholders that are getting taxed on their Passive Foreign Investment Companies (PFICs) have the option to make a qualified electing company (QEF) election to avoid the tax treatment of being a PFIC. Irina goes on to say "If the election is made the first year a company is deemed a PFIC, its shareholders are taxed annually on any income the PFIC earns. But they are no longer subject to punitive aspects such as excess interest charges and higher income tax rates."

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