Hotscot

I worked for a manufacturing Company X, (let's say). It is based in Europe but has offices in the U.S.

Five years ago as an employee I was allowed to buy shares in X
Two years after that the company was sold but I took no distribution. Instead my investment was rolled back into the company.

Since I have had no income, since I am not a Director, and my investment is less than 10% it hasn't occurred to me to report this investment to the IRS.

Am I correct or not?

Jscl

Are you saying instead of having shares in Company X, you now have shares in Company Y?

In the simple case: there is no tax consequence until you sell the shares... make sure you keep details of your original investment and new cost per share etc., so that you can complete Sch D when you sell all or part of your investment.

In the complicated case: whether there are special rules for a large investment or something like that, I have no idea if there are additional tax consequences. Hopefully someone else will know.

Michael

Generally if distribution was cash during a buyout instead of a stock swap, then taxes are due at distribution.

Hotscot

Thanks for the input. I still have the shares at Company X.
I just wasn't sure if recent reporting rules like FATCA for example, meant that I was obligated to report foreign investments whether or not I was gaining income from them.

JAJ

Assuming it's a direct stockholding, not a controlled foreign corporation and is in an active business, so not a passive foreign investment corporation, then ...

- Stockholding should probably be declared on form 8938.
- Any dividends are taxable, and possibly as ordinary income rather than qualified dividends.
- You will pay capital gains tax when you sell.

What is not clear is whether the transaction a few years ago caused a taxable event or not. What you say doesn't really make sense. If the company was sold, then how do you still own shares in it? (unless only a controlling interest was sold with minority investors unaffected).

You should seek professional tax advice.

Hotscot

Thanks for the feedback. I've been advised that the company is not considered a foreign corporation as it runs operations globally including in the U.S.

(The majority share of the company was sold to a venture capital group a few years ago, everyone who already had an investment was allowed to cash out or roll it over at that stage, which I did. There have been no dividends issued)

JAJ

I still think you need some professional advice concerning whether (or not) a taxable event took place at that point.

Hotscot

I shall be doing that. Just educating myself in the interim.

I've determined that there wasn't a taxable event but just owning over $50,000 worth of assets in a foreign entity, whether it generates income or not, is reportable under FATCA. And the penalty for not reporting is $10,000 per year.

I'm waiting for the information tomorrow from the company as to their IRS status re. a multinational compared to a foreign corporation, since a major part of their business resides in the US.

Michael

According to the following table, if a stock or security is held in an account at a foreign financial institution or a foreign stock or security is not held in a financial institution such as you holding foreign stock certificates, it must be reported if the value of the foreign account or stocks are greater than $50,000.

In my opinion (but I may be wrong), the definition of a foreign stock is a stock that was purchased on a foreign exchange such as the FTSE even if the stock is for an American company since that stock is different than the same stock traded on the NYSE or NASDAQ exchanges and can only be traded on the exchange where it was purchased. Therefore if you purchased Pfizer (an American company) on the FTSE exchange and took possession of the stock certificate, that stock would need to be reported but if you purchased Royal Dutch Shell through the NYSE and took possession of the stock certificate, you do not need to report that stock since the stock is an American Depository Receipt (ADR). But I suspect that if you opened a foreign financial account and put that ADR into the account to be sold immediately, the account would then have to be reported but if the ADR was sold through an American financial institution, it would not have to be reported.

http://www.irs.gov/Businesses/Typeso...bleonForm-8938

Hotscot

That's good info Michael, thanks.
I own a small part of the company. The ownership wasn't purchased through an exchange. It was a direct investment into the company by upper management, including me.
The stock doesn't trade actively/publicly and there are no annual financial records provided to me. Only when the company is sold in a few years will the value of my holding be recalculated.

I was never provided with any stock certificates, just a letter telling me how many shares I own of the company.

I've sent a message to the company financial people and I'm awaiting their response.

Michael

Now I understand why you are having difficulty determining whether the asset needs to be reported. Since the asset is not publically traded, it is difficult to even place a value on the asset.

Is the asset a stock or a stock option? If the asset is a qualified stock option or even a stock of a privately held company, I'm not sure that FATCA covers that asset. That may be a loophole in FATCA along with real estate allowing the rich to purchase and sell foreign real estate or privately held stocks without a paper trail.

Hotscot

Yes, it's stock in a privately held company. Actually, that's not true..I just checked the doc...it states that I own shares and not stock but I don't know if that makes a difference.

I have sent out inquiries to some people but until I get a definitive answer I'm continuing research.

To reiterate.
Privately held manufacturing company with HQ in France but global manufacturing and admin facilities.
No stock/share trading taking place.
No physical share certificates.
No dividends.
No periodic valuation.
I own less than 10%
I'm not with the company anymore.
I will be reimbursed, along with Capital Gains when the company is privately sold in a few years.

Michael

The meaning is interchangeable.

Michael

I'll give you another opinion.

It appears that the stock is held by the company and not in a financial account. That should be similar to you holding the stock certificate since that would be "Foreign stock or securities not held in a financial account" which requires reporting. Fortunately since it is only a reporting procedure without taxes being due and the company that is holding the stock is not a financial institution holding the stock in an account and since non financial institutions are not required sign a FATCA reporting agreement, it appears that the 30% withholding requirement is not applicable for non financial institutions that don't sign the FATCA reporting agreement.

Therefore I suspect that reporting the stock would be the best option since it could possibly fend off possible future problems.

Although the IRS cannot enforce the 30% withholding requirement for financial institutions that don't sign the FATCA reporting agreement, the US government can then ban the company from doing business in the US.

I suspect professionals are trying to come to a consensus for situations like this.

Hotscot

Thanks for the time you've spent thinking about this. I don't have any issue paying tax where it's due but there's a $10,000 penalty, ouch, simply for not filing the past years.