Form 926 - Filing Requirements

Form 926 must be filed by U.S. citizens or green card holders transferring property to a foreign corporation. This is a measure by the IRS to ensure proper tracking and taxation of such transfers. The form serves to report the property transfer and calculate any resulting taxes owed.

>> Download and print the Form

What info needs to be included on Form 926?

When completing Form 926, it is necessary to furnish comprehensive details regarding the transferor and transferee, along with the property being transferred, which includes:

• The name, address, and EIN (if applicable) of the US transferor.
• Detailed information about the foreign corporation receiving the property, including its name, address, and country of incorporation.
• A detailed description of the transferred property is required, encompassing its fair market value and the methodology employed to ascertain this value.
• The date of the transfer and the percentage of stock or securities of the foreign corporation owned by the US person after the transfer.

Furthermore, it may be necessary to disclose any monetary or non-monetary exchanges involved in the transfer, including cash payments or the foreign corporation assuming liabilities.

What are the filing requirements for Form 926?

Transfers of Cash

When a U.S. person transfers cash to a foreign corporation, the obligation to file Form 926 depends on the transferred amount and the resulting ownership stake in the foreign corporation.

Filing Form 926 is mandatory if the transfer exceeds $100,000 during the tax year or if it leads to the U.S. person owning 10% or more of the foreign corporation. This filing requirement helps ensure that significant transfers are disclosed to the IRS for appropriate monitoring and taxation.

Transfers of Stock or Securities

Similar rules apply to the transfer of stock or securities to a foreign corporation. The factors triggering the filing requirement include the value of the transferred stock or securities and the resulting ownership percentage.

If these transfers meet or exceed the thresholds mentioned earlier, the US person must report the transaction using Form 926. This includes detailing the type and value of the securities transferred, the date of transfer, and the ownership stake in the foreign corporation after the transfer.

Distributions by Domestic Liquidating Corporations

Distributions from domestic liquidating corporations to foreign corporations are also subject to Form 926. If a domestic corporation undergoing liquidation distributes assets to a foreign corporation, the transaction must be reported if the U.S. person holds significant ownership, or if the value of the assets distributed meets the reporting thresholds.

When is Form 926 Filed?

Form 926 must be filed by a US person or entity that transfers property to a foreign corporation during the tax year if the transfer meets certain criteria. The form is due at the same time as the transferor’s income tax return, including tax extensions, for the year in which the transfer occurred.

This means if you’re transferring property in 2023, and your tax return is due in April 2024, Form 926 should be filed alongside your 2023 tax return by April 2024, or by the extended due date if an extension is filed.

Are there any penalties for failure to file Form 926?

Failing to file Form 926 without reasonable cause may result in a penalty. Moreover, not filing can lead to increased examination of your tax returns and may extend the statute of limitations for the IRS to audit the relevant tax year.

Here’s a detailed look at the penalties associated with failing to file Form 926:

• Base Penalty: The IRS imposes a penalty of 10% of the fair market value (FMV) of the property transferred to the foreign corporation at the time of the transfer.
• Penalty Cap: The penalty for not filing Form 926 is capped at $100,000 unless the failure to file is found to be due to intentional disregard of the filing requirements. In cases of intentional disregard, there is no cap on the penalty, which means the financial consequences can be significantly higher.
• Intentional Disregard: Should the IRS conclude that the failure to file stems from willful neglect of the filing requirements, penalties may exceed the $100,000 threshold.
• Increased IRS Scrutiny: Not filing Form 926 can result in financial penalties and may flag your account for heightened IRS scrutiny. Such attention could lead to more thorough audits of your tax returns.
• Extended Statute of Limitations: Typically, the IRS has a three-year statute of limitations to audit a tax return. However, failure to file Form 926 can extend this period, giving the IRS more time to investigate and potentially challenge your tax filings.
• Additional Consequences: Taxpayers may encounter additional consequences, such as penalties for the underpayment of taxes if their failure to report leads to an underpayment of the tax owed. Interest on any unpaid taxes and penalties begins to accrue from the tax return's due date, which can increase the total debt over time.

How we can help you

At H&CO, we have a team of skilled tax professionals (CPAs) who have a deep understanding of the intricacies involved in income tax preparation. Our experts are committed to guiding you through the entire process with utmost care and attention. We provide exceptional service and a customized approach to help you navigate the US and international income tax laws while keeping you updated with the latest changes.

With offices in the US in Miami, Coral Gables, Aventura, Fort Lauderdale, Orlando, Melbourne, and Tampa as well as offices in over 29 countries, our CPAs and International Tax Advisors are readily available to assist you with all your income tax planning, tax preparation and IRS representation needs. To learn more about our accounting firm services take a look at our individual tax services, business tax services, international tax services, expatriate tax services, SAP Business One, entity management, human capital, and audit and assurance services.