Recording sale of foreign investment Part 2

[sjacobs6]

This is a follow up to my original post now that I’m getting further into this.  I will apologize up front for this long-detailed question about how to record a foreign investment transaction.  The first part is the history/detail needed to ask the questions.

Back in 2023 I was able to purchase 4,000 shares x 5.30 Euros for a total of $23,008.36 in the private company I work for (UK Based).  At the time of the purchase, I was instructed to file a form 83B Election, which I mailed to the IRS. At the end of the year, when I did my taxes on TT, I did not fill out a form 8329 declaring I had the 4,000 shares for a value of $23,026.  I didn’t know at the time that I may have needed to file it, or if I was supposed to file it, and I still don’t know. At a later date, I was told that I will also be receiving some additional shadow shares as a bonus (didn’t have to pay for them), but was not told how many shares, nor did I have any visibility to what those holdings were worth when they were given to me, the value only became known to me after the event occurred and I received a payout statement.

Fast forward to 2025.  The company went through an event that triggered the sale of the shares (cashed out old investors, brought in new investors) which in turn cashed out our shares.  The payout was in the form of cash and reinvestment into new shares in the restructured company.  The cash I received was from the liquidation of my original 4,000 shares (4,000 shares x 13.62 Euros) for a total of $64,222 and I received a pro forma 1099-B with all the details.  The shadow shares I had were valued at 75,979 Euros ($89,553 U.S.).  The total value between the stock and the shadow share proceeds was $153,775 US dollars.  Keep in mind the only cash I received was the $64,222.  Of the shadow share proceeds (75,979 Euros), 50,009 Euros were used to purchase 50,009 new shadow shares at 1 Euro (1.17866 conversion rate = $58,943 U.S.). The statement I received shows the other 25,970 Euros were paid out, but I never received any dollars above and beyond the $64,222, so I’m not sure where that is or what happened to it, or where it got distributed (I know that sounds crazy, I just know everyone involved is confused about that and I haven’t been able to get any answers).

For my 2025 return I recorded the $64,222, from the original shares, on the 8949 along with my basis in TT based on creating a 1099-B from the pro-forma 1099-B I received (the company said they won’t be reporting the 1099-B to the IRS). That part was easy and I should be good there.

The questions:

1. Since the proceeds from the original shadow shares were used to purchase new shadow shares in the company, there should be no tax event, but do I now need to report those new shares (50,009 shares) on a new 8938 to disclose I have them?  If so, how do I do that?
2. At the time my shares were cashed out and rolled over, the combined value between the original 4,000 shares I purchased, plus the shadow shares I received at a later date were valued at $153,775, based on the statement at time of cash out, do I need to also include a 8938 for that transaction since the value was over $150K at some point in the tax year?  Meaning, I did answer the question Yes, under “Did you own any Foreign Assets”, but I originally marked “No” for was the value over $150K at some point of the year because I didn’t count the shadow shares as part of the assets.  But now I think I need to, is that correct?
   1. If I have to answer yes to that and fill out the form, will I then get taxed on those rolled over shares?
3. Also, If I do have to fill out the 8938 for the transaction, will that cause a problem because I didn’t file an initial 8938 for the original 4,000 shares?
4. Do I need to re-file something for my 2023 return to go back and report those shares?  If so, what and how to do it?
5. I recently received an “Individual International Tax Compliance Self-Certification form” that I needed to fill out and sign.  What is that for and how does that affect what I need to file with my taxes so everything matches up?

If this is beyond the scope of this community, I will gladly pay for the help/advice on TT, or I would gladly go to a TT location (don’t know how to make an appointment.  I tried but it just takes me to the TT website and wants me to fill out my taxes online first).  Before I do that, I would just want to make sure this is something they can help with.  If this is beyond the scope of this community and the online advice option, I will need to get outside help, then in that case, how do I file an extension from TT until I can get that help?

[DaveF1006]

Here are detailed answers to your questions, and hopefully these will help. 

1. Form 8938: The $150,000 Threshold

To answer your core question: Yes, you likely need to file Form 8938 for 2025.

1. The Rule: If you are Married Filing Jointly (living in the US), you must file Form 8938 if your foreign assets were worth more than $100,000 on the last day of the year OR more than $150,000 at any time during the year. 
2. Shadow Shares Count: Even though shadow shares aren't "real" stock, the IRS considers them "Specified Foreign Financial Assets" (specifically, an interest in a foreign entity or a financial instrument with a foreign counterparty).
3. Tax Impact: Filing Form 8938 is informational. It tells the IRS what you own; it does not create a new tax on its own. You are taxed on the income or gains (the 1099-B part), not the mere existence of the assets.

2. The 2023 "Missing" Filing

You mentioned having $23,026 in 2023.

1. Threshold Check: If your total foreign assets (including bank accounts, if you have them abroad) were below $50,000 (Single) or $100,000 (Married) at year-end 2023, you likely did not have a 8938 filing requirement then.
2. Form 83(b): You did the right thing mailing the 83(b) election in 2023. This "locked in" your basis at $5.30 Euro. You generally do not need to file a separate form every year just to "remind" them of the 83(b), but you must keep that proof of mailing forever.

3. The Shadow Share "Rollover"

Shadow shares are usually treated as deferred compensation (ordinary income), not capital gains.

1. The Cash-Out: Even though you "rolled over" 50,009 Euros into new shadow shares, the IRS often views the liquidation of the old shadow shares as a taxable event (constructive receipt), unless the plan was specifically structured as a tax-free exchange (rare for phantom stock).
2. You will need to file a return reporting the liquidation of the old shares. If this was done in 2023, you will need to file a 2023 tax return or if you did a file a 2023 US tax return, you will need to file an amendment.
3. The "Missing" 25,970 Euros: This is likely where your tax withholding went. Foreign companies often withhold taxes at the source or use a portion of the proceeds to cover the tax liability of the "bonus" before reinvesting the rest. You need to ask your HR/Payroll for a "Settlement Statement" or "Tax Sub-ledger" to see if that cash was sent to the UK or US tax authorities on your behalf.

4. What is the "Self-Certification" Form?

This is a FATCA/CRS compliance form. Your company (or their bank) is required by international law to certify whether their shareholders/participants are "US Persons."

Why it matters: By signing this, you are confirming you are a US taxpayer. The bank will then report your holdings to the IRS. This makes it critically important that your Form 8938 matches what they report, or it could trigger an automated IRS notice.

Let us know if you have any additional questions. This is a lot to digest but hopefully I've given you a starting point on how to handle this.

[sjacobs6]

Thank you so much for your reply, I really appreciate it, and my apologies for the long message