Under Section 1291 of the IRC, a "U.S. holder" means a beneficial owner of shares of Till Shares who is, or that is, (i) a U.S. citizen or resident, (ii) a U.S. corporation, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust that it is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, or has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.
If Till is considered to be a PFIC, a U.S. holder who owns any Till Shares may be subject to adverse U.S. federal income tax consequences, including (i) a greater tax liability than might otherwise apply, (ii) an interest charge on certain taxes that are otherwise deferred by virtue of our non-U.S. status, (iii) recognizing gain from the sale of Till Shares as ordinary income (and potentially subject to an interest charge), and (iv) dividends received from us not constituting qualified dividend income (and therefore not eligible for the preferential rate of tax otherwise available to qualified dividend income). In such a case, U.S. holders that own an interest in Till will be required to file additional annual U.S. federal tax information returns.
For tax years through December 31, 2017, in general, Till would be a PFIC for a tax year if either (i) 75% or more of its income constitutes "passive income" or (ii) 50% or more of its assets (by value) produce or were held to produce "passive income," based on the quarterly average of the fair market value of such assets. Passive income generally includes interest, dividends, and other investment income but does not include income derived in the active conduct of an insurance business by a corporation predominantly engaged in an insurance business (the "Active Insurance Company Exception").
We do not believe that Till was classified as a PFIC for the tax years ended December 31, 2014, 2015, 2016, and 2017. No opinion of legal counsel or ruling from the U.S. Internal Revenue Service ("IRS") concerning our status as a PFIC has been requested or obtained. Whether Till will be classified as a PFIC for the year ended December 31, 2017, or any prior tax years, will depend, in part, on whether Till was actively engaged in insurance activities that involved sufficient transfer of risk and whether our financial reserves were consistent with industry and regulatory standards. As such, Till can provide no assurance that it will not be deemed a PFIC for federal income tax purposes as contemplated in Section 1291 of the IRC.
Should Till be classified as a PFIC, a U.S. resident holder of Till Shares may be required to file an annual report with the IRS containing such information as the Treasury Regulations and/or other IRS guidance may require (e.g., IRS Form 8621). In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax.
If Till is classified as a PFIC, a U.S. holder may be able to mitigate certain of the adverse, or negative, tax consequences by making an election to treat Till as a "Qualified Electing Fund" or by making a mark-to-market election with respect to such U.S. holder's ownership of Till Shares.
On December 22, 2017, the President of the United States signed the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act, among other things, replaces the PFIC test based on whether a corporation is predominately engaged in an insurance business with a test based on the corporation's insurance liabilities.
For tax years beginning after December 31, 2017, in general, Till would be a PFIC for a tax year if Till's applicable insurance liabilities constituted 25% or less of Till's assets as reported on Till's financial statement for that tax year. Applicable insurance liabilities include loss and loss adjustment expenses and certain reserves, but do not include unearned premium reserves.
Whether Till will be classified as a PFIC for the tax year ended December 31, 2018 or any subsequent tax years will depend, in part, on whether Till maintains applicable insurance liabilities in excess of 25% of Till's assets as reported on Till's financial statements. As such, Till can provide no assurance that it will not be deemed a PFIC for federal income tax purposes as contemplated in Section 1291 of the IRC.