Exclude Israeli Government Accounts for Children from IRS PFIC Rules

A new Israeli governement program allocates NIS 50 per child per month from the goverment into an investment account (parents can add an additional NIS 50). Some of the tracks invest the money in Israeli mutual funds, while others invest in the bank. As children will typically have a 10-15 year investment horizon, mutual funds are better bets - especially because the accounts will not be charged management fees. However, under current rules, investing in Israeli mutual funds would result in children being treated as if they have invested in Passive Foreign Investment Companies, and subject to double taxation and onerous reporting. PFIC rules should not apply to children participating in an Israeli government program. The IRS should exclude these accounts from the PFIC rules!