Form 926 and transfers to a foreign corporation

Your Guide to State, Local, Federal, Estate + International Taxation

Form 926, international tax, foreign corporationIf you send money or other property to a foreign corporation, you may be required to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation. If required to file, Form 926 is filed with your income tax return. It is an informational form only, meaning there is no tax paid with the form, but only information supplied to the IRS.

Who is required to file?

Only U.S. persons file Form 926, including:

  • U.S. citizens or residents
  • Domestic partnerships (The partners of the partnership, not the partnership itself, files the 926 to report their proportionate share of the property transferred.)
  • Domestic corporations (In an S-Corp, it is the S-Corp that files Form 926, not the shareholders.)
  • Domestic estates
  • Domestic trusts (The trust files Form 926 as long as the trust is not a grantor trust. Non-grantor trusts filing Form 926 relieve the beneficiaries of the filing requirement.)

What is reported?

Generally speaking, some of the transactions reportable are as follows:

  • Transfers of cash are reportable if either the transferor owns at least 10% in the foreign corporation by vote or value immediately after the transfer or if the amounts of cash transferred during the year exceed $100,000.
  • Transfers of property to an 80% controlled corporation solely in exchange for stock
  • Transfers of certain intangibles
  • Transfers of stock or securities
  • Check-the-box elections when there is a deemed contribution of assets
  • Certain distributions and liquidations into a foreign parent corporation
  • Other transfers of property to a foreign corporation unless an exception is met

What happens if I don’t file?

If a taxpayer neglects to file Form 926 for any year in which the form should have been filed, penalties equal to 10% of the fair market value of the property transferred (maximum penalty of $100,000) may be assessed, unless the taxpayer can prove reasonable cause and not willful neglect. The statute of limitations is also extended to three years after the required information is reported.

This information is general in nature and should not be relied upon. It is only a brief overview of the 926 requirements. Please note that there are exceptions to the requirement to file Form 926. Please consult a qualified tax advisor to assist with your reporting needs.

Jill A. Helm, CPA