# Tax filing for foreign ESOP shares



## wdg (Apr 15, 2017)

In summer 2016 I bought into my Japanese company’s ESOP during their IPO (equivalent to 5000 dollars or so) with subsequent small payments (equivalent to 200 dollars or so) every month until I left the company in November of 2017. The company still holds the shares on my behalf and my understanding is that I won’t be able to move the shares into my own account (and sell them) until a year has passed. (I could be considered an “insider” as I helped translate some confidential documentation for the company).

I hadn’t thought too hard about my US tax filing obligations for these shares in 2016 as a lawyer friend in the company (also a US citizen) mentioned that his tax guy said there would be no filing obligations on ESOP shares until they vest (I’m not totally sure what that term means to be honest), which would not be until the coming year.

But I am wondering if he was correct. Should I have declared these share holdings on my FBAR last year? And what about this year - if I am still unable to receive the shares from the company until Nov 2018, are there no filing obligations for this year (on my fbar or 1040 or otherwise)?

Sorry for the tricky question.


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## Bevdeforges (Nov 16, 2007)

The term "vested" refers to when the shares in question become yours to do with as you like. (OK, that's a vast simplification, but you get the general idea.) 

The problem with all this citizenship based taxation (CBT) is that the US tax rules are written for US residents and US financial instruments. Applying this stuff to foreign accounts and residents requires a certain level of interpretation - so you'll get a variety of opinions, no matter what question you ask.

I think you're safe to assume that the ESOP shares don't come into play for your tax reporting until your shares vest - i.e. until you are able to take full possession of them to sell or give away or do with as you please.

Unless you've got shares representing at least 10% of the company, I'd just treat them like regular old shares. Assuming that you're going to sell them, just report the difference between what you paid and what you received as your capital gain and be done with it. If you keep them in a brokerage account, you may have to report the brokerage account itself, but not the individual shares. 

But as I said, you'll get a variety of opinions from various tax advisers. The best thing is to keep things simple - as long as the amounts involved are relatively minor (say, under $100,000 or so).
Cheers,
Bev


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## wdg (Apr 15, 2017)

Thank you for the clear explanation Bev.

I think I will wait to declare the shares on my 1040 and FBAR until next year, when they will become exercisable.

Thank you for the great advice, as always.


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