Foreign Company Restricted Stock Units and Awards
One of the most complicated aspects of income tax for US Person employees is how their Restricted Stock Units (RSU) and Restricted Stock Awards are taxed on a U.S. tax return — especially when those RSUs/RSAs (or equivalent) are issued by a foreign company employer. With the globalization of the US economy comes the headache of trying to reconcile multiple different domestic and foreign tax concepts together onto a single US tax return. In some countries, Restricted Stock issuance enjoys a different type of tax status than it does in the United States. Since future awards and vesting of stock shares originate at the time employment begins or soon thereafter — it is important to have a basic understanding of the process from the outset. Let’s go through the basics of the tax and reporting implications for US persons who receive RSUs/RSAs from foreign companies.
What is an RSU/RSA?
The acronym RSU refers to a Restricted Stock Unit and RSA refers to Restricted Stock Aware — they are similar, but not the same. For example, 83(b) elections are available for RSA (Restricted Stock Awards) but not RSU (Restricted Stock Units). In a common situation, a company may entice potential employees by providing them RSUs/RSAs in addition to their regular income. RSAs are awarded at the outset, but restrictions apply and are subject to certain vesting timetables. RSUs vest after a certain number of years of working for the employer. The complexities of an RSU or beyond the introductory scope of this article, other than to understand that when RSUs are issued they are not vested. They vest after a certain amount of time and then the taxpayer must include the vested value on their taxes — subject to any exception, exclusions, or limitations.
Foreign Company RSU/RSA
When a foreign company issues a restricted stock unit or award to a US person, the same general tax rules and concepts apply. Therefore, when a US person works for a foreign company that issues the US employee restricted stock, the US employee will be required to report the income on their U.S. tax return once the restrictions/vesting period concludes. This is despite the fact that the foreign company may not issue a W-2 (which will usually include information regarding vesting restricted stock) — and foreign employees of the same company who are not US persons may not be taxed on that income.
Are RSUs Reportable for FBAR & FATCA?
This can become a very complicated issue, depending on the specific foreign employer and how the restricted account is established. For example, is the account solely under the name of the employer and then when the shares vest in the employer’s account they are transferred to the employee’s account — or do the shares sit in a joint account that automatically becomes accessible to the employee at the time the shares vest. In the former scenario, if the employee does not have any access authority over the account — then it may not be reportable for FBAR (but might be reportable for FATCA, especially if an 83(b) election was made for an RSA). Conversely, if it is an account that is established in the name of the employee in which the employee does have some access or authority on the account — then the employee would presumably have to report the account for international information reporting purposes on forms such as FBAR and Form 8938.
Failure to Report Foreign RSU
If a US person has not properly reported their RSU for income tax or disclosure purposes, there are various offshore amnesty programs the taxpayer could apply to in order to see if we get into compliance. The FBAR/FATCA Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.
Some of the more common programs include:
Can I Just Start Filing FBAR This Year Instead?
No, unless the current year is the first year you had an FBAR Reporting requirement. If you had a prior year reporting requirement, but only begin to start filing in the current year (Filing Forward) it is illegal. In the world of offshore disclosure, this is referred to as an FBAR/FATCA Quiet Disclosure.
The IRS has warned taxpayers that if they get caught in an FBAR/FATCA Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
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