I am a shareholder in a foreign private company which are not held in an account/brokerage. Should I file FBAR?

[einholen]

I've been reading instructions for FBAR and form 8938, and there seems to be a distinction between an asset and an account. Until last year, my shares have been managed in Carta as "exercised option grants" but are otherwise not held in an account - I don't have an account number - and because it's a private company, I can't sell the shares unless a quialified event occurs. This can only be done during rounds of investment, or if the company is sold or goes public. Does this mean this is an asset I don't have signature authority over?

The value of the shares according to 409a valuation is enough to require filing form 8938 (because it's an asset reportable on that form), and thus also enough to require a FBAR _if_ it is required. But _should_ I be filing FBAR for an asset that's not an account?

[MarilynG1]

Generally, if you had an interest over 10K in a foreign asset, you would file an FBAR.  Here's more detailed info on Filing an FBAR. 

The IRS has a comparison chart for Form 8938/FBAR requirements to help you.

@einholen 

[einholen]

Hi @MarilynG1,

Thank you for the reply. That's what I'm confused about - the link you provided specifically states "account" and "account in a financial institution" in the FBAR section, but in my case I've technically been a direct shareholder in the registry of shareholders in the company - there's no account associated with my share. I've been following TurboTax prompts and it never indicated that I need to file FBAR - just 8938.

Additionally, this year they started managing these shares in Shareworks which is a company that's headquartered in Canada but has a US entity associated with it. So I technically now have an account, but from what I can tell it's now a foreign asset with a US-based brokerage, so from this year on I'm reading it that technically I no longer must file FBAR for this asset even if I had this obligation before.

[DaveF1006]

According to FBAR instructions, it specifically states that:

1. a financial interest in or signature or other authority over at least one financial account located outside the United States if
2. the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.

It further defines an account being one held in a financial institution.  Since your shares are option exercise grants, this is potential income that hasn't been "exercised" thus is an asset and not an account. you are correct in not reporting this on an FBAR as defined by the IRS.

Since there is a US Brokerage associated with Shareworks, this also does not require a FBAR but still a foreign asset to be reported on a 8938.

@einholen

@einholen 

[einholen]

@DaveF1006 The way I understand it, the company in the UK manages the shareholder registry themselves - Carta was just used to conveniently reflect the number of shares / options owned.

I exercised before they started using Carta (but also before the FMV of my share crossed 8938 reporting threshold), and now they use Shareworks which is a Canadian company that's also present in the US (I believe), but the company confirmed that they still (also?) maintain shareholder registry internally.

Oh, additionally, I read in TurboTax that a "financial account" could mean "any equity in a foreign financial institution". It so happens that the foreign private company that issued my shares is also a financial institution, albeit not in business of managing equity. I wonder if that provision still makes it a financial account from IRS/FinCEN standpoint?

[DaveF1006]

Right now, we are dealing with legalities and as a result, we may render legal opinions that we are not allowed to render.. I have been always taught that if you are not sure, report it!! Since FBAR is informational, this won't have any impact on your tax return itself and may save you from having a headache in the future.