Oct. 20, 2009 (PR Newswire) -- ATHENS, Greece, Oct. 20 /PRNewswire-FirstCall/ -- TOP Ships Inc. (Nasdaq: TOPS) (the "Company") today announced that it expects to be treated as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for 2009.
Generally, a foreign corporation will be treated as a PFIC for U.S. federal income tax purposes if either (1) at least 75% of its gross income for any taxable year consists of certain types of "passive income" or (2) at least 50% of the average value of the corporation's assets produce or are held for the production of those types of "passive income." Based on the application of these criteria, management believes that the Company and certain of its subsidiaries will likely be treated as a PFIC for the 2009 taxable year. The Company's classification as a PFIC may have adverse U.S. federal income tax consequences to U.S. taxable shareholders of the Company.
Under the PFIC rules, a U.S. shareholder that makes a Qualified Electing Fund, or QEF election, must report each year for U.S. federal income tax purposes his pro rata share of our ordinary earnings and our net capital gain, if any, for our taxable year that ends with or within the taxable year of such holder, regardless of whether or not distributions were received from us by the shareholder. The shareholder's adjusted tax basis in the common stock will be increased to reflect taxed but undistributed earnings and profits. Distributions of earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the common stock and will not be taxed again once distributed. A shareholder making a QEF election would generally recognize capital gain or loss on the sale, exchange or other disposition of the Company's common stock. A U.S. shareholder would make a QEF election with respect to any year that we are treated as a passive foreign investment company by filing one copy of IRS Form 8621 with his United States federal income tax return and a second copy in accordance with the instructions to such form. A U.S. shareholder will need to make a QEF election for the Company and for each of its subsidiaries that is treated as a PFIC. We intend to provide each U.S. shareholder with all necessary information in order to make the QEF election for the Company and each of its subsidiaries that is a PFIC for 2009.
A U.S. shareholder that does not make a QEF election (which election could itself have adverse consequences for such shareholder) would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of the Company's common stock, as if the excess distribution or gain had been recognized ratably over the shareholder's holding period of such common stock.
