Last week, December 12, 2014, the IRS published final regulations on the foreign financial assets reporting requirements (FBAR) that favorably resolve one of the vexing issues under FBAR/Form 8938. The final regulations clarify that nonvested interests in property received for performance of services (e.g., equity awards) do not have to be reported on Form 8938 until they become substantially vested (except in the case of nonvested interests for which the individual made a Section 83(b) election).
As you may know, all U.S. citizens must file with the IRS a Foreign Bank Account Report (FBAR) to report offshore bank accounts and other specified foreign financial assets by June 30 of each year on Form 8938 if the value of the foreign accounts exceeded $10,000 at any time during the calendar year. Importantly, individuals who are not U.S. citizens but have become U.S. tax residents also must annually file an FBAR to report their specified financial assets outside of the U.S. Employees who are not U.S. citizens usually have some reportable financial assets outside the U.S.
Among the specified foreign financial assets the individuals must annually report to the IRS are vested stock options and stock acquired through the exercise of options or vesting of restricted stock awards. Foreign retirement benefit plans are another common asset of your non-U.S. citizen employees. Readers working for a company that is owned by a foreign parent company may encounter this issue with employees who own stock in the foreign parent (which is often held in the parent company’s home country).