What Is IRS Form 926 and Who Is Required to File?

IRS Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is a report filed with the Internal Revenue Service (IRS). U.S. persons use this form to disclose certain transfers of property to foreign corporations. Its main function is to provide the IRS with visibility into international transactions, helping to track assets and income that could shift outside of U.S. tax jurisdiction. This reporting allows the IRS to ensure that any applicable taxes on these transfers are correctly assessed and paid.

Determining if You Need to File

A “U.S. transferor” is defined as a U.S. citizen, a resident alien, a domestic corporation, a domestic partnership, or a domestic estate or trust. You may need to file Form 926 when you transfer property to a foreign corporation, as the requirement is triggered by specific types of exchanges. These transactions often involve exchanging property for stock in the foreign corporation.

The filing obligation is not universal, and certain thresholds must be met. For instance, a transfer of cash must be reported if the total amount transferred during a 12-month period exceeds $100,000. A filing is also required if, immediately after the transfer, the U.S. person holds at least 10% of the total voting power or value of the foreign corporation. This 10% ownership rule applies whether the property transferred is cash, tangible assets, or intangible assets.

The rules specifically apply to transfers to foreign corporations, so transfers made to a foreign partnership are not reported on this form. However, if a domestic partnership transfers property to a foreign corporation, its U.S. partners are required to file Form 926 to report their proportionate share of the assets transferred. Certain corporate reorganizations that are otherwise tax-free might not trigger a Form 926 filing if the U.S. transferor is not required to recognize any gain on the exchange.

Information Required to Complete Form 926

To properly complete Form 926, specific information must be gathered in advance. The form is structured into several parts, each requiring distinct details about the transaction. Accurate preparation is dependent on having complete records for both the transferor and the foreign corporation receiving it.

The initial part of the form, Part I, requires identifying information for both the transferor and the foreign transferee corporation. This includes the full legal name, U.S. taxpayer identification number (TIN) or employer identification number (EIN), and complete address for the U.S. person. For the foreign corporation, you must provide its name, address, and country of incorporation.

Part II of the form asks for general information about the transfer itself. You will need to report the date of the transfer and indicate the type of property being moved, such as tangible property, intangible property, or cash.

The most detailed section is Part III, which requires a comprehensive breakdown of the property transferred. For each asset, you must provide a description, its fair market value (FMV) on the date of transfer, and its adjusted basis. The adjusted basis is the original cost of the asset, adjusted for factors like depreciation, and is used to calculate the gain recognized on the transfer.

Filing Procedures and Deadlines

The process for submitting Form 926 is straightforward, as it does not have its own separate due date. The completed form must be attached to the filer’s annual income tax return for the tax year in which the transfer of property occurred. For an individual, this means attaching it to their Form 1040, while a corporation would attach it to its Form 1120.

The deadline for Form 926 is the same as the deadline for your primary tax return. For example, if a transfer takes place during a given tax year, the form is due by the filing deadline in the following year. Should you file for an extension for your income tax return, the due date for submitting Form 926 is also extended.

Penalties for Non-Compliance

Failing to file Form 926 when required, or filing a form that is late, incomplete, or inaccurate, can lead to significant financial penalties. The primary penalty is 10% of the fair market value of the property that was transferred at the time of the exchange.

There is a monetary limit on this penalty, which is capped at $100,000 for each specific failure. However, this cap does not apply if the failure to file was due to intentional disregard of the rules. In cases of intentional disregard, the penalty can be significantly higher.

Beyond the financial penalty, other repercussions can apply. The statute of limitations for the IRS to assess tax on the transfer may be extended, giving the agency more time to audit the transaction. In cases involving fraudulent intent or willful failure to comply, criminal penalties could be pursued.