Why TurboTax and H&R Block miss your PFIC filing

If you filed your US taxes on TurboTax or H&R Block this year and it never once asked about your Indian mutual funds, that silence probably felt like good news. It isn't. Today I'll show you exactly why that gap exists. The IRS treats a fund like this as a Passive Foreign Investment Company, or PFIC, and it needs its own form, Form 8621, filed separately for every fund you hold, every year.

Neither TurboTax nor H&R Block's consumer product generates this form, so if you own a PFIC, you're on your own for it, whether the software told you so or not, and by the end you'll know where the gap comes from, where NRIs get caught by it most often, and what it actually costs to leave it unfiled.

What TurboTax and H&R Block actually do with a PFIC

TurboTax and H&R Block are built around a specific kind of return. W-2 wages, 1099-DIV dividends, 1099-B brokerage sales, a mortgage interest deduction. The guided interview asks a question for each of these because millions of filers need the same handful of forms every year.

Neither product's interview asks whether you own a foreign mutual fund. It does not ask about what actually counts as a PFIC, an ELSS fund back home, or a ULIP your parents set up in your name. If the software never asks, it never generates the form, and it never flags that you might owe one.

This matches what InvestMates found comparing PFIC compliance tools directly against consumer tax software: general tax software offers minimal PFIC support, priced from free up to around $169 a year, and cannot compute PFIC tax on its own. You have to bring your own Form 8621 numbers to it, fully worked out, before the software can even accept them as an attachment.

H&R Block's situation is similar, with one wrinkle. H&R Block does publish detailed expat resource pages explaining PFIC rules in plain language, so the information exists on their site. But that content sits separately from the consumer filing product most people actually use to prepare a return. Reading the explanation and having the software act on it are two different things, and only the second one gets your return filed correctly.

Rahul, an H1B engineer in Austin, found this out the way most people do. He had used TurboTax for four straight years, imported everything, and never saw a single question about the SIP he still ran in an HDFC equity fund back in Pune. The software had no way to know it existed, and nothing in four years of returns ever prompted him to mention it.

Why the gap exists, and it is not a bug

Form 8621 is not a simple form to automate. The default method, Section 1291 excess distribution, requires spreading gains across every year you held the fund, applying the highest marginal tax rate that applied in each of those years, and then adding IRS underpayment interest calculated from the midpoint of each year to the date you actually pay.

That means a return filed in 2026 might need the 2018-onward rate of 37 percent for some years and the pre-2018 rate of 39.6 percent for others, all on the same form, for the same fund. A mass-market product built to process a few million nearly identical W-2 returns was never built to run that kind of multi-year, rate-specific calculation for a small slice of its user base.

The other two election methods carry the same problem. Mark-to-market taxes unrealized gains as ordinary income every year, which needs a value tracked from the year you elected it. A Qualified Electing Fund election needs the fund itself to issue an annual information statement under US tax principles, something almost no Indian AMC does. None of that data lives in a W-2 or a 1099. The interview was never built to ask for it, so it doesn't.

There is also a simpler, structural reason. The IRS e-file schema, the standardized data format tax software uses to transmit a return electronically, does not carry the same level of automated support for Form 8621 that it carries for a 1099 or a W-2. Even if TurboTax wanted to build a full PFIC calculator into its consumer product, the number of filers who would use it each year is small relative to the engineering cost of getting the three-method calculation right. It is a rational business decision, just not one that helps you.

Where NRIs get missed most often

Indian mutual funds and ELSS bought before the move

The most common case by far. Priya bought an ELSS fund in 2019 for the Section 80C tax deduction, years before she moved to the US on an L1 visa. She never sold it, never even thought about it once she landed, and TurboTax never once asked.

ULIPs and other insurance-linked investment plans

A ULIP looks like insurance on paper, but the IRS generally looks through the insurance wrapper to the investment units underneath. Practitioner consensus treats the investment portion as a PFIC in most standard retail ULIPs. Neither product's interview distinguishes a ULIP from a normal life insurance policy.

Funds still held jointly with a parent or spouse in India

Meera's mutual funds were held jointly with her mother in Chennai, opened years before Meera ever considered a US move. She assumed a jointly held Indian account fell outside her US filing obligations. It does not, and reviewing the three election methods early would have given her a cleaner starting position than discovering the gap years later.

What the software's silence actually costs you

If no election was made, the default Section 1291 treatment applies automatically, and it is deliberately punitive. Gains get spread across your full holding period, taxed at the highest rate in effect for each year, plus interest that compounds from the midpoint of that year forward.

The bigger risk sits outside the tax bill itself. Under IRC Section 6501(c)(8), failing to file a required Form 8621 suspends the statute of limitations for your entire return, not just the PFIC line. A return the IRS could normally only audit for three years stays open indefinitely until the form is filed. There is a narrow exception: if you can show the failure was due to reasonable cause and not willful neglect, the extended assessment period applies only to the PFIC item itself rather than the whole return, though establishing reasonable cause is a determination worth making with a preparer, not assuming on your own. What happens if you never file it gets more specific about the numbers involved.

According to the IRS instructions for Form 8621, the filing requirement applies whenever you receive a PFIC distribution, recognize gain on a disposition, or are reporting under the default excess distribution rules, regardless of which tax software you used to file the rest of your return.

For most NRIs holding even one Indian mutual fund, this table is the difference between a return that looks complete because the software said "done" and a return that is actually complete. The software's job ends at the forms it was built to ask about.

What to do if you already filed without it

Start by finding out what you actually hold. Pull the last three to four years of statements from every Indian AMC, brokerage, or insurer where you have money invested, and separate growth funds from anything that paid distributions.

Check whether any fund's value crossed the $25,000 single or $50,000 joint threshold, and whether you had a distribution, sale, or made an election in any of those years. That determines whether the exception applied or a filing was actually due.

If a filing was due and never happened, look at the Streamlined Filing Compliance Procedures if the omission was non-willful, or a delinquent submission if the facts fit that path better. Deciding which path applies is worth a real conversation, not a guess, and comparing tax software choices on your own isn't the fix here since the gap sits outside what any of them cover.

Anil went through this after switching from H&R Block to a CPA for an unrelated reason, a home sale. The CPA asked one question about foreign investments that four years of tax software never had, and it turned up two Indian mutual funds Anil had genuinely forgotten he still owned. Nothing had happened yet. No notice, no audit, no penalty. That timing, catching it before the IRS does, is the entire difference between a straightforward correction and a much harder conversation.

Do not amend blindly the moment you suspect a gap. Amending a return without first knowing whether the streamlined procedures apply can close off an option that would otherwise have reduced your penalty exposure. Get the facts assembled first: which funds, which years, growth or dividend, any sales. Then decide the filing path with someone who has actually done this before.

Conclusion

TurboTax and H&R Block are good at the returns they were built for, but a PFIC was never one of them, and their silence on it means nothing about whether you owe the form.

If you hold any Indian mutual fund, ELSS, or ULIP, pull the last three years of statements and check whether Form 8621 was ever filed before you assume the software already caught it. An InvestMates advisor who works specifically with NRI cross border filings can help you figure out where you actually stand.