FBAR / Form 8938 compliance for stock options in foreign startup

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pokka
Posts: 29
Joined: Sat Feb 27, 2021 10:16 pm

FBAR / Form 8938 compliance for stock options in foreign startup

Post by pokka »

Hi All,
I am a US citizen, recently moved to Canada (in 2021).
I am new to the cross-border tax scene, but I have been learning what I can about the basics from this awesome forum and the internet in general.
This often causes me to wake up in the middle of the night in a cold sweat worrying about noncompliance :)

Anyway, here is a slightly esoteric issue that came up. I would be grateful for any advice, thoughts or references!

I have some stock options in a foreign internet startup (based in Europe). Many are vested, some are not yet. I was never an employee of this startup, just a contractor. They have been vesting over the last 2-3 years.

By contract, I cannot sell any stock (if I exercise the options) until the company is sold, or it goes public, or if the company expressly allows me to.

So far I did not report these stock options as income on any of my US taxes. I think that is legitimate because the exercise price is equal to the 409A valuation of the company at the grant date (the startup did get a 409A valuation done - I believe it is in anticipation of a US company buying it).

1. Should I have reported the vested stock options on FBARs? These stock options are totally illiquid to me. Should I report them on my 8938?
If I should report them, how should I value them? There have been funding rounds since the option grant date that make these options quite valuable, but they could go down as fast as they went up.

2. The company just allowed me to sell some of my stock to a new investor. I am planning on exercising 5% of my stock options, and selling the resulting shares to the investor. Now this is clearly income (not capital gains - these are NSO, not ISO, since I was a contractor, not employee). Is there any FBAR/8938 thing I need to do regarding this?

3. There isn't any PFIC thing to worry about here, is there?

Thanks in advance!
pokka
Posts: 29
Joined: Sat Feb 27, 2021 10:16 pm

Re: FBAR / Form 8938 compliance for stock options in foreign startup

Post by pokka »

Sorry, I meant (Canadian form) T1135 wherever I said 8938 in the previous post.
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: FBAR / Form 8938 compliance for stock options in foreign startup

Post by ND »

RE: Should I have reported the vested stock options on FBARs? Should I report them on my 8938?
In general, FBAR and 8938 are disclosure, not taxing forms; items reported that weren't required generally cause no harm while unreported items that were required do cause harm. Thus rule of thumb - when in doubt, report.

RE: These stock options are totally illiquid to me.
Using FBAR/8938 reporting rules, can you cite why illiquidity would be relevant?

RE: If I should report them, how should I value them?
For FBAR Fincen says the maximum value of an account is a reasonable approximation of the greatest value of currency or nonmonetary assets in the account during the calendar year. https://www.fincen.gov/reporting-maximum-account-value
pokka
Posts: 29
Joined: Sat Feb 27, 2021 10:16 pm

Re: FBAR / Form 8938 compliance for stock options in foreign startup

Post by pokka »

Many thanks, I appreciate your thoughts!

Since these are in a startup whose share value is not readily determined, I guess I will use the 409A valuation? (I don't know this, I guess I can ask them). Or the latest funding round valuation? (I do know this but I believe it is secret)
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