A U.S.-listed international index fund — Vanguard Total International Stock ETF VXUS(.08%) or iShares Core MSCI Total International Stock ETF IXUS(.07%) for all-ex-US, Vanguard FTSE Developed Markets ETF VEA(.06%) for developed markets, Vanguard FTSE Emerging Markets ETF VWO(.08%) or iShares Core MSCI Emerging Markets ETF IEMG(.09%) for emerging — gives you thousands of foreign companies in a 1099-reporting, wash-sale-clean, PFIC-immune vehicle. This is the right answer for the overwhelming majority of readers; the rest of this section concerns the cases where you deviate from it.
An ADR is a U.S.-traded certificate, issued by a U.S. custodian bank (BNY Mellon, Citi, J.P. Morgan), representing a fixed number of shares of a foreign company held abroad. You buy and sell it in dollars on a U.S. exchange, receive dividends in dollars, and get a 1099 — none of the PFIC machinery applies, because the underlying is an operating company, not a pooled fund. Sponsored ADRs are established by the foreign company itself and come in three levels: Level I trades over-the-counter with minimal SEC disclosure; Level II lists on NYSE or Nasdaq with full reporting; Level III is a Level II that also raises new U.S. capital. Unsponsored ADRs are created by a bank without the issuer’s involvement, often duplicate one another, and carry thinner disclosure — prefer sponsored Level II/III for any core holding. Watch the custody fee: depositary banks skim an annual “ADR pass-through fee” (typically $0.01 to $0.05 per share) straight out of your dividend.
A mutual fund or ETF listed in London, Dublin, or Toronto is a PFIC in the eyes of the IRS, with the punitive consequences detailed in section “Foreign Mutual Funds and the PFIC Tax Minefield”. Direct foreign stocks and U.S.-listed ADRs are fine; foreign funds bought through a foreign brokerage account are the trap.