Is “Stock” Property Within the US?

Have you discovered the estate of a non-US citizen that contains US property? What appears to be US property may not always be considered such by the Internal Revenue Service.  The Internal Revenue Code provides specific categories of property situated within the US and property situated outside the US.

If you discover the foreign citizen’s estate includes stock, do you need to file a US estate tax return and include the shares?  Maybe. The Internal Revenue Code states that stock is considered US property  if it has been issued by a US corporation.[1]  So the question becomes: where is the “home country” of the corporation that issued the stock?

For example, Sam owns 5,000 shares of the Acme Corporation (“Acme”), a US corporation, with a value of $70,000.  Acme is a closely held corporation that Sam formed, and he died owning its stock.  Sam’s estate would need to file a US estate tax return and include the shares of Acme, since it is a domestic corporation.  If Sam had formed Acme  in another country, however, he would not need to include the shares in his US estate tax return.

What if Acme’s shares are publicly traded in a US stock exchange?  The Internal Revenue Code does not make a distinction between closely held or publicly traded stock.  If Sam owns Acme shares, a domestic corporation, he will include the value of his shares in his US estate tax return.

Lastly, what if the Acme shares are traded on a foreign stock exchange?  It does not matter whether the shares are traded on the New York Stock Exchange, Toronto Stock Exchange, or another nationally recognized stock exchange.  If  Acme is a US corporation, Sam will include the value of his shares in his US estate tax return.

So, just keep in mind the underlying principle:  the IRS looks to the “home country” of the corporation in determining whether the value of the shares is included in a foreign citizen’s US estate tax returns.