Owning "foreign" stocks?
 

Hey there! Such a great resource for people with questions - always appreciate the posts I read here!

I have a quick and potentially stupid question that spurred from a random chat with a friend of mine. We both do a little bit of trading for fun on the stock market (I just have a regular trading account with etrade) and we were discussing what potential extra filing there may be with the IRS if you invested in foreign companies whose stocks that trade on the NYSE for example (I guess Sony, or Honda, would be a good example). Would owning these stocks be considered a foreign asset?

If so, would owning stocks in foreign companies through a US trading account (etrade) cause any filing requirements through FBAR, Form 8938, or even form 3520 (and 3520a).

Could be a crazy question, but something I had never thought about before!

What do you think?

Re: Owning "foreign" stocks?
 

If it's quote on the NYSE it is necessarily priced in USD and you "bought it in New York". It is not a foreign investment.

End of story. :nod:

The whole point of non-US companies listing in New York is to attract and enable US investors to buy stock without having to deal with the complexities of tax and reporting for foreign investments.

Re: Owning "foreign" stocks?
 

If it's an American Depositary Receipt (ADR), then it's effectively a U.S. wrapper around a foreign stock. Instead of owning foreign stock directly, you own them through a U.S. based custodian.

Assuming the stock is held as part of a U.S. brokerage account, you would receive a 1099 as normal and would not need to do any self-reporting to the IRS. So in that respect it's treated as a U.S. domestic stock.

However, the holding may still be subject to foreign income taxes (for which you may need to claim a U.S. tax credit on form 1116). Other foreign taxes may also apply. So in that respect, it's still a foreign stock.

Re: Owning "foreign" stocks?
 

Well 8938 and FBAR relate to accounts held by FFIs which would not be the case here and 3520 wouldn't come into it either because they're not foreign trusts. 3520-A is for US agents so by definition not relevant as it is in the US.

Re: Owning "foreign" stocks?
 

A little off topic.

Regarding FATCA, what do the following terms mean in practice?

'Foreign stock or securities not held in a financial account'

'Foreign accounts and foreign non-account investment assets held by foreign or domestic grantor trust for which you are the grantor'

From

Types of Foreign Assets and Whether They are Reportable on Form 8938

(Update. Ok, I see that the second phrase refers to a trust. The first phrase seems very vague to me though, or are there specific meanings?)

Re: Owning "foreign" stocks?
 

I thought the first basically referred to paper stock certificates or similar?

Re: Owning "foreign" stocks?
 

I'd love to know...

Re: Owning "foreign" stocks?
 

It means what it says. If you hold the stock directly, and not through a brokerage account.

If you have a brokerage account, you report that and not the underlying stocks.
If you own the stock directly (less common these days) you report the stock.

Re: Owning "foreign" stocks?
 

Ok, that helps.

Re: Owning "foreign" stocks?
 

The reason for that is that if you physically hold foreign stock certificates, you could possibly sell them through a foreign brokerage and the sell probably won't be reported to the IRS. As long as a US brokerage holds the certificates, their isn't any issue.

Re: Owning "foreign" stocks?
 

Five years ago I was invited to, with other management, to invest in the company I worked with at that time.
Private company, no public offering.
No share certificate issuance.
No annual accounts.
I have no control over the company whatsoever.
I have no idea what my investment is worth until the company is sold next year when the market valuation will be realised and they'll pay out.

Not really sure what category, if any, it falls into regarding FATCA.

I know that other managers and ex managers haven't been reporting. I certainly haven't.

Re: Owning "foreign" stocks?
 

Under US law, that may possibly be qualified stock options and if the company goes public or shares of a public company is offered in exchange and are held for at least one year, profits are taxed at the long term capital gains rate when sold.

Under US law, qualified stock options can only be issued by non public companies.

Re: Owning "foreign" stocks?
 

Thanks Michael...I'm reaching the limits of my current understanding in this particular case. I'll probably hire a pro when it pays off.

My main issue is whether it had to be reported under FATCA.
It's not an FFI.
No accounts.
No Annual Fair Market Evaluation.
No share certificate.
Is my investment worth > 50K? No idea...can't be determined.
What I have is a record of my original buy in against the value of the company in 2011. Next year the company will be sold, only then will it be valued, and managers who bought in will see a return.

Thanks!

Re: Owning "foreign" stocks?
 

Quite the unique case for sure. You mention FATCA, and maybe I'm misunderstanding, but wouldn't it be the financial institution (you say it's not a FFI, but assuming this is a foreign company?) that is in charge of the account figure that out ? I was under the impression that the an individual wouldn't report anything under FATCA - the financial institution would? Well, obviously you would file the FBAR and 8938 (at least that's what I think it's called) if over the threshold.

For example, I talked with my UK bank and they said they would contact me if they needed any info for FATCA. MY UK account has around £30 in it (plus an old credit card).

Again, maybe I am not following correctly


<EDIT> Nevermind - I forget that FATCA means not only foreign financial institutions to report to the IRS about their U.S. clients but ALSO United States persons to report their financial accounts held outside of the United States -

This would be the Form 8938

Sorry!

Re: Owning "foreign" stocks?
 

^ For some reason I remembered incorrectly and thought FATCA was the law for the foreign institutions to report and the Form 8938 was a separate topic. My bad!