IRS Form 926 is a niche tax form designed to report certain transfers of cash or property from U.S. taxpayers to foreign corporations. Whether you’re transferring cash, stocks, real estate, or other valuable assets, filing Form 926 correctly can save you from significant penalties.
The filing requirements and instructions for this international tax form are quite complex, and it’s easy to make mistakes. But don’t worry—at Gordon Law, we’ve helped hundreds of clients navigate offshore tax compliance.
In this guide, we’ll break down who needs to file Form 926, what information must be included, and how to avoid common pitfalls.
What is IRS Form 926?
IRS Form 926, formally known as the “Return by a U.S. Transferor of Property to a Foreign Corporation,” is a tax form used to report certain transfers of property from U.S. taxpayers to foreign corporations.
It applies if the transferred property exceeds $100,000 in value during the tax year; if the taxpayer owns 10% or more of the foreign corporation after the transfer; or in other specific situations.
This form supports the IRS’s anti-money laundering efforts and calculates any tax owed from the transfer of property.
Form 926 Filing Requirements
The filing requirements for Form 926 are quite detailed and complex, so we advise consulting an international tax lawyer for help. Here are the basics you need to know about who needs to file this form and when.
Who Must File Form 926?
The following types of entities may be required to file Form 926:
- U.S. citizens and green card holders
- Corporations
- Partnerships
- Estates
- Trusts
Reportable Transactions
U.S. taxpayers are required to file Form 926 if they transfer property to a foreign corporation in specific situations. These situations include:
- Property Exceeds $100,000: If you transfer tangible or intangible property to a foreign corporation, and the total value of the transfer(s) exceeds $100,000 during the tax year, then you must file Form 926. Property can include cash, real estate, intellectual property, stocks, and more.
- Control of Foreign Corporation: If you own at least 10% of the total voting power or value of the foreign corporation immediately after the transfer, you are required to file Form 926.
- Transfer of Stocks or Securities: If you transfer stocks or securities to a foreign corporation and are required to file a Gain Recognition Agreement (GRA) under IRS regulations, you must report this transfer on Form 926. A GRA is an agreement to recognize gain on the transferred property if certain conditions are not met in the future, such as if the foreign corporation disposes of the stock or securities.
- Domestic Liquidating Corporation: If a U.S. corporation transfers property to a foreign corporation as part of a complete liquidation, the U.S. corporation must file Form 926. This applies when the domestic corporation is distributing its assets to a foreign corporation, often in exchange for stock, as part of winding down its operations.
Filing Exceptions
There are some exceptions to Form 926 filing requirements, particularly in cases where the transfer involves both stock and boot (additional cash or assets included to raise the value of the transfer).
Filing Deadline
Form 926 must be filed at the same time as the reporting entity’s annual tax return—typically April 15 of each year.
Penalties for Non-Compliance and Underreporting
- 10% Penalty: The penalty for failure to file Form 926 is 10% of the fair market value of the property at the time of the transfer. This penalty is limited to $100,000 if the noncompliance was non-willful.
- Tax Assessment: The statute of limitations for the IRS to assess tax on the transfer is 3 years after you report the required information.
- 40% Penalty: The IRS may also impose a 40% penalty on underpayment of tax resulting from an undisclosed foreign financial asset.
- Reasonable Cause: The IRS may waive Form 926 penalties if you have reasonable cause, demonstrating that the error was not caused by willful neglect and that you acted in good faith in regards to your filing requirements.
Form 926 Filing Instructions
IRS Form 926 reports details about the U.S. transferor, the foreign transferee, and what was transferred. You can view the form here. Here’s a breakdown of each section of the form:
Part I – U.S. Transferor Details:
In this section, you’ll provide key information about the U.S. entity or individual making the transfer. This includes:
- Name
- Address
- Taxpayer Identification Number (ITIN) or Employer Identification Number (EIN)
- Description of the transferor—whether you’re filing as an individual, corporation, trust, or other entity type
Part II – Information on the Foreign Corporation (Transferee):
Here, you’ll need to give details about the foreign corporation that is receiving the property. This includes:
- Name
- Address
- Country of incorporation
- Relationship between the foreign corporation and the transferor
Part III – Specifics of the Transferred Property:
This section asks for a deep dive into the property you’re transferring. You’ll report:
- The type of property (whether it’s real estate, securities, intellectual property, etc.)
- Date of transfer
- Fair market value at the time of transfer
- Any recognized gain from the transaction
Part IV – Additional Transfer Information:
In the final section, you’ll include any further details that might influence how the transfer is taxed. This could involve:
- The terms of the transfer
- Any liabilities taken on by the foreign corporation
- Other specifics that might affect the overall tax consequences
Need help with international tax forms? Call Gordon Law!
Because of the technical details involved with Form 926, and the steep penalties for noncompliance, it’s wise to hire an experienced international tax professional to prepare this form on your behalf. We can also prepare more common international tax forms, including the FBAR, FATCA, and Form 3520.
At Gordon Law, we’ve focused on international tax compliance for more than a decade. We make it easy to stay on top of your filing requirements and avoid IRS penalties! Give us a call at (847) 580-1279 to schedule your confidential consultation.
