What Is Form 926? Filing Requirements, Penalties, and Deadlines

Form 926 is the IRS information return that a U.S. person files to report a transfer of property to a foreign corporation. If you contribute cash, equipment, stock, or intellectual property to a foreign company in a qualifying exchange, the transfer generally has to be disclosed on this form and attached to your income tax return for the year the transfer took place. Skipping it costs 10 percent of the property’s fair market value, and the statute of limitations on your whole return stays open until you file.

Who Has to File

The filing obligation reaches any “U.S. person” who transfers property to a foreign corporation in an exchange described in Sections 332, 351, 354, 355, 356, or 361 of the Internal Revenue Code.¹ That covers U.S. citizens, resident aliens, domestic corporations, domestic estates, and domestic trusts.² In practice, the form shows up most often when someone contributes appreciated property to a foreign subsidiary or capitalizes a new foreign entity.

For cash, the rule is more specific. You have to file if either of two things is true immediately after the transfer: you hold at least 10 percent of the foreign corporation’s total voting power or total value, or you sent more than $100,000 in cash to the corporation during the 12-month period ending on the transfer date.³ The $100,000 figure is fixed by statute and does not adjust for inflation.¹ The 12-month window is cumulative, so four quarterly transfers of $30,000 cross the threshold even though no single payment does.

The 10 percent ownership test also isn’t limited to shares held in your own name. The IRS applies the attribution rules of Section 318 as modified by Section 6038(e)(2), so stock owned by your spouse, children, grandchildren, and parents can count as yours, along with stock held through partnerships, estates, trusts, and other corporations.⁴ A family that collectively controls a foreign company can therefore be caught even when no single member holds 10 percent directly.

Transfers That Trigger the Form

Form 926 reaches three broad categories of property: cash, tangible assets, and intangibles. Stock transfers get their own treatment.

Cash transfers follow the two-trigger rule above. Tangible property such as equipment, inventory, or real estate is reported on Section B of Part III of the form.³ For transfers after 2017, tangible assets are generally subject to full gain recognition under Section 367(a)(1), so you’re treated as having sold the property at fair market value on the transfer date. The gain recognition rule and the reporting rule are separate obligations; you owe tax on the gain and you file the form.

Intangible property — patents, copyrights, trademarks, trade secrets, and similar assets — falls under Section 367(d), which does not tax the transfer as a single sale. Instead, the U.S. transferor is treated as receiving annual deemed royalty payments over the useful life of the intangible, included in income each year even when no cash actually moves.⁵ The transfer still has to be reported on Form 926, even when it happens inside an otherwise tax-free reorganization.²

Transfers of stock or securities to a foreign corporation are also reportable under a separate set of rules in Treasury Regulation Section 1.6038B-1(b)(2). Whether you own less than 5 percent or 5 percent or more of the transferee determines what additional information you must supply.⁶

Why the Tax Bill Is Often Larger Than Expected

Contributing property to a corporation in exchange for stock is normally a nontaxable event under Section 351. Section 367(a) overrides that rule when the corporation is foreign: for purposes of deciding whether gain has to be recognized, the foreign corporation is not treated as a corporation at all.⁷ The practical effect is that you recognize gain as though you sold the property at fair market value on the transfer date.

Full gain recognition is now the general rule for tangible property transferred after 2017, with limited exceptions.³ Intangibles take the annual-inclusion route under Section 367(d) instead. Either way, the IRS is collecting tax on the appreciation before the property leaves its reach, and Form 926 is how the agency confirms the transfer happened and the gain was reported correctly.

What the Form Asks For

The form is built in three parts that move from the person filing to the transaction itself.

Part I identifies the U.S. transferor by name, taxpayer identification number, and the date of the transfer.³ Individuals use a Social Security number; corporations, estates, and trusts use an EIN.

Part II identifies the foreign transferee: name, address including country, any EIN it holds, and a reference ID number if it has no EIN. For transfers after 2017, you also indicate whether the transferee is a “specified 10-percent-owned foreign corporation” as defined in Section 245A.²

Part III is the substantive section. For each item of property you report the fair market value on the transfer date and your adjusted basis at that point.³ The difference between those numbers is the built-in gain the IRS wants to see. Intangibles subject to Section 367(d) also require a short explanation of how the arm’s length price was determined. Undervaluing property can trigger penalties; overvaluing it can inflate the gain you recognize.

When and How to File

Form 926 is attached to your income tax return for the year that includes the transfer date — Form 1040 for individuals, the appropriate 1120-series form for corporations.³ The deadline is your return’s deadline, including any approved extension. If you e-file, Form 926 goes with the electronic return; paper filers attach it to the mailed return.

Who Doesn’t Have to File

Federal regulations carve out several exceptions from the filing rule.

If you own less than 5 percent of both the voting power and the value of the foreign corporation immediately after the transfer, you may be exempt, provided additional conditions are met, such as qualifying for nonrecognition treatment on the transfer.³
Entities exempt under Section 501(a) generally don’t file Form 926, as long as the income from the transferred property is not unrelated business income.³
You aren’t required to report under Section 6038B if you exchange stock or securities of a foreign corporation in a reorganization described in Section 368(a)(1)(E), or exchange stock in an asset reorganization that is not treated as an indirect stock transfer.⁶
If the transfer is treated as outbound only because of the rules in Section 1.83-6(d)(1) and the property’s fair market value does not exceed $100,000, no Form 926 is required.³

Deciding whether an exception applies takes careful analysis of your ownership percentage, the type of exchange, and the entity’s tax status. There’s no penalty for filing when you didn’t have to; missing a required filing is expensive.

The Penalty and the Open Statute of Limitations

Failure to file Form 926 costs 10 percent of the fair market value of the transferred property on the date of the exchange.¹ On a $2 million equipment transfer, that is a $200,000 penalty for a form that produces no additional tax on its own. The penalty is capped at $100,000 per failure, and the cap disappears entirely if the IRS determines the failure was due to intentional disregard.

Intangibles carry a further consequence. A person who fails to report a contribution of intangible property under Section 367(d) must recognize gain as if the property had been sold at fair market value on the contribution date, in addition to the 10 percent penalty.¹ What would have been gradual annual inclusions becomes a single lump-sum hit.

The quieter consequence is timing. Under Section 6501(c)(8), the IRS has at least three years after you finally furnish the required information to assess additional tax, not three years from the return’s original due date.⁸ A return that would normally close after three years can stay open for a decade or more if the form is never filed. When the failure is due to reasonable cause rather than willful neglect, the extended assessment period reaches only the items related to the unreported transfer, not the whole return.

Reasonable Cause and Fixing a Missed Filing

The 10 percent penalty doesn’t apply if you can show the failure to file was due to reasonable cause and not willful neglect.¹ The IRS looks at reasonable cause case by case, asking whether you exercised ordinary care and prudence but still could not comply.⁹ Fires and natural disasters, serious illness, or system failures that blocked timely electronic filing can support the argument. Not knowing about the requirement generally isn’t enough on its own; the IRS expects taxpayers to learn their obligations or hire someone who will. Reliance on a tax professional who never mentioned the form usually needs to be paired with other circumstances. If you’re asserting reasonable cause, attach a written statement explaining what happened, when, and what you did to comply.

If you discover a missed filing before the IRS contacts you, the Delinquent International Information Return Submission Procedures give you a path to come into compliance.¹⁰ Attach the late Form 926 to an amended income tax return for the relevant year and file it through normal channels. You can include a reasonable cause statement, but the IRS cautions that penalties may still be assessed during processing, and you may need to respond to follow-up correspondence to finish establishing the defense. Eligibility hinges on the IRS not already having contacted you and no civil examination or criminal investigation being underway. Once the IRS reaches out first, this voluntary route closes.

Other Forms the Same Transaction May Trigger

Form 926 rarely stands alone. Transferring property to a foreign corporation may also require Form 5471 if the transfer gives you a reportable ownership interest in the foreign company. A contribution of property in exchange for stock can trigger Form 926 for the property and Form 5471 for the stock at the same time. Form 8938 may apply on top of that if your interest in the foreign corporation crosses its reporting thresholds. Each form is a separate obligation with its own penalty, and filing one does not satisfy another. Missing several forms on the same transaction can add up to more than the value of what you transferred.

1
Office of the Law Revision Counsel. 26 U.S. Code 6038B – Notice of Certain Transfers to Foreign Persons
2
Internal Revenue Service. Form 926 – Filing Requirement for U.S. Transferors of Property to a Foreign Corporation
3
Internal Revenue Service. Instructions for Form 926
4
eCFR. 26 CFR 1.6038B-1 – Reporting of Certain Transfers to Foreign Corporations
5
Office of the Federal Register. Section 367(d) Rules for Certain Repatriations of Intangible Property
6
GovInfo. 26 CFR 1.6038B-1 – Reporting of Certain Transfers to Foreign Corporations
7
Office of the Law Revision Counsel. 26 U.S. Code 367 – Foreign Corporations
8
Office of the Law Revision Counsel. 26 U.S. Code 6501 – Limitations on Assessment and Collection
9
Internal Revenue Service. Penalty Relief for Reasonable Cause
10
Internal Revenue Service. Delinquent International Information Return Submission Procedures