A founder who wires startup capital into a foreign corporation they formed, or a domestic company that funds its new overseas subsidiary, has almost certainly triggered a filing obligation most people never see coming. Form 926, Return by a US Transferor of Property to a Foreign Corporation, exists to put that funding on the IRS's radar under IRC Section 6038B, and the size and structure of the transfer decide whether it applies, whether or not the transfer produced a dollar of gain. Missing it is a distinct, separate failure from getting the underlying tax wrong, and it carries its own penalty and its own open ended statute of limitations.
Who Has to File Form 926?
A US citizen, resident alien, domestic corporation, or domestic estate or trust files Form 926 when it transfers property to a foreign corporation in an exchange described in Section 6038B(a)(1)(A). The statute names six kinds of exchange: a Section 332 liquidation, a Section 351 contribution, and reorganizations under Sections 354, 355, 356, and 361. Form 926 carries OMB Number 1545-0026 and Attachment Sequence Number 128, and the signature on the income tax return it accompanies verifies it.
The fact pattern behind most of these filings is ordinary. A US person forms or capitalizes a foreign company, contributes cash, equipment, or intellectual property to it under Section 351 in exchange for stock, and that contribution is the transfer the statute is describing. A domestic corporation seeding a new overseas subsidiary, an individual founder incorporating abroad, and a US shareholder contributing property to an existing foreign corporation to shore up its balance sheet all land in the same rule.
What Cash Transfers to a Foreign Corporation Trigger Form 926?
A pure cash contribution to a foreign corporation still has to be reported, and two independent tests decide whether it does. Treasury Regulation 1.6038B-1(b)(3) requires the filing where the transferor holds at least 10 percent of the corporation's total voting power or total value immediately after the transfer, or where the cash moved by that transferor and any related person to the same foreign corporation during the 12 months ending on the transfer date exceeds $100,000. Either test by itself is enough, and a transferor does not need to meet both to owe the filing.
The Two Cash Transfer Tests
Reg. 1.6038B-1(b)(3)Ownership test. At least 10 percent of the vote or value, held directly, indirectly, or by attribution, immediately after the cash moves.
Amount test. More than $100,000 in cash moved to the same foreign corporation by the transferor or a related person during the 12 months ending on the date of the transfer. A transfer of exactly $100,000 does not by itself satisfy this test.
The Form 926 instructions restate these as "at least 10%" and "more than $100,000," but they leave out a detail buried in the regulation itself. The $100,000 count is not limited to what one person sent. It aggregates cash sent to the same foreign corporation by any related person under Section 267(b)(1) through (3) and (10) through (12), so a founder splitting contributions across a spouse or a related entity does not shrink the total that counts against the threshold. Cash must still move inside one of the covered exchanges, most commonly a Section 351 contribution for stock, and the mechanics are separate from the statutory 10 percent and $100,000 thresholds written into Section 6038B(b)(1), which apply only to transfers to a foreign partnership and are reported on Form 8865 instead.
Once a transfer clears either test, Form 926's Part III, Section A is where cash gets reported, and the instructions note that a filer who transferred only cash can skip the rest of Part III entirely and move to Part IV.
How Does the 10 Percent Ownership Test Work?
The 10 percent threshold is measured by attribution. It reaches beyond the shares registered in the transferor's own name. Ownership is counted directly, indirectly, or by attribution under the constructive ownership rules of Section 318(a), as modified for this purpose by Section 6038(e)(2), which means stock held by a spouse, a child, a parent, a partnership, or certain related entities can be attributed back to the transferor. A founder who personally holds less than 10 percent of a new foreign entity can still cross the threshold once a family member's or an affiliated entity's stake is added in. The filing obligation follows the attributed total, and a transferor's own direct stake alone can understate what actually counts.
What Happens to Gain Under Section 367(a) and Section 367(d)?
Filing Form 926 does not make the underlying transfer tax neutral. The reporting requirement runs alongside Section 367, which decides on its own whether any gain or intangible value in the transfer gets taxed. Under Section 367(a)(1), in an exchange described in Section 332, 351, 354, 356, or 361, the foreign corporation is treated as though it were not a corporation at all for purposes of measuring gain, which strips away the nonrecognition that the same exchange would enjoy between two domestic parties. The Tax Cuts and Jobs Act repealed the prior active trade or business exception for transfers after 2017, so built-in gain on tangible property transferred to a foreign corporation is now generally recognized in full, with no loss allowed on built-in loss property and no netting of gains against losses.
Intangible property is pulled out of that gain rule and taxed under its own separate regime. Section 367(d)(1) routes intangibles transferred in a 351 or 361 exchange away from Section 367(a) entirely, and Section 367(d)(2)(A) treats the transferor as having sold the intangible in exchange for payments contingent on its productivity, use, or disposition, received annually over its useful life and commensurate with the income the intangible produces. Those deemed payments are ordinary income under Section 367(d)(2)(C) and are treated as a royalty for foreign tax credit basket purposes under Section 904(d). Section 367(d)(4) defines intangible property broadly enough to include patents, know how, copyrights, trademarks, customer lists, and, for tax years beginning after 2017, goodwill, going concern value, and workforce in place.
Note that Section 355 appears among the exchanges covered by Section 6038B's reporting rule but is not one of the exchange types listed in Section 367(a)(1) itself, so the two lists of covered exchanges are not identical and should not be treated as interchangeable.
How Are Partnership Transfers to a Foreign Corporation Reported?
A partnership never files its own Form 926, even when the partnership itself is the entity that transferred the property to the foreign corporation. Under the special rule in the instructions, each domestic partner is treated as the transferor of its own proportionate share of the property, computed under the partnership rules of Sections 701 through 761, and each domestic partner attaches its own Form 926 to its own return reporting that share. Spouses who file a joint income tax return may combine their shares onto a single Form 926, but that exception applies only where a joint return is actually filed.
A transfer made to a foreign partnership is a separate question from everything above. Contributions and other transfers to a foreign partnership fall under Section 6038B(a)(1)(B). Form 8865 reports them, and that statutory branch is where the 10 percent and $100,000 thresholds written directly into Section 6038B(b)(1) actually apply.
What Is the Penalty for Missing Form 926?
The penalty for a missed or defective Form 926 is pegged entirely to the property's value. Section 6038B(c)(1) fixes it at 10 percent of the fair market value of the transferred property measured at the time of the exchange, a figure that ignores whatever gain or income the transfer actually produced. Section 6038B(c)(3) caps that penalty at $100,000 per exchange, but the cap is removed entirely where the failure amounts to intentional disregard, defined in the regulations as a case where reasonable cause is absent and the transferor knew of the rule that was disregarded. A return that includes a Form 926 with false or inaccurate information can also count as a failure to comply even though something was technically filed on time.
Section 6038B(c)(2) allows the penalty to be excused for reasonable cause, but relief is not automatic. The regulations require the transferor to file an amended return promptly after discovering the failure, attach the missing Form 926 information, and include a written statement explaining the reasons for the original omission, sent to the examiner if one is assigned or otherwise to the Director of Field Operations, Cross Border Activities Practice Area of LB&I. The IRS's own guidance on late international information returns cautions that penalties can be assessed before that reasonable cause statement is even considered, so a late filing corrects the record but does not by itself guarantee that the penalty goes away. A separate 40 percent penalty under Section 6662(j) can also apply where an underpayment traces back to an undisclosed foreign financial asset.
Does the Statute of Limitations Ever Close on an Unreported Transfer?
An unreported Form 926 keeps the assessment window open past the usual three years. Section 6501(c)(8)(A) holds the assessment period for any tax tied to the unfiled or defective information open until three years after the date the IRS actually receives it, so a transfer that goes unreported can leave the related tax year assessable for a decade or longer after the original return was filed. Where the failure to file the form had its own reasonable cause, Section 6501(c)(8)(B) narrows that extension so that it applies only to the specific items connected to the failure.
Late Form 926 filings fall under the IRS's delinquent international information return procedures, where an information return other than Forms 3520 and 3520-A is attached to an amended income tax return along with a reasonable cause statement, with the same caution that the penalty determination does not automatically wait for that statement to be reviewed. Founders in this position often carry controlled foreign corporation exposure and a related Form 5471 filing on top of Form 926 itself.
When and Where Do You File Form 926?
Form 926 carries no due date or filing address of its own. Treasury Regulation 1.6038B-1(b)(1) requires it, along with its attachments, to be attached to the transferor's income tax return for the tax year that includes the date of the transfer, and it must be filed by the due date of that return, including any extension the transferor obtained. There is no separate mailing step and no independent deadline to track; the form is due exactly when the return it attaches to is due.
A handful of exceptions relieve the filing where the transfer is narrow enough. No Form 926 is required for certain stock or securities transfers where the transferor owned less than 5 percent of both vote and value immediately after the exchange and qualified for nonrecognition, and a transferor who held 5 percent or more can still be excused where the transfer was taxable to the transferor and the income was properly reported on a timely filed return. Form 926 is required in every case where a gain recognition agreement is filed, and no filing is required where a US person exchanges foreign stock in a Section 368(a)(1)(E) recapitalization, or exchanges domestic or foreign stock for foreign stock in an asset reorganization that is not treated as an indirect stock transfer under Regulation 1.367(a)-3(d). Outside of those narrow carve outs, the safer assumption for any US person funding a foreign corporation is that the form applies until the exceptions are checked against the facts of the specific exchange.
A founder funding a foreign corporation this year should treat Form 926 as its own checklist item, tracked separately from whatever the transfer accomplishes for the business, because none of these exceptions apply themselves. Confirming the filing while the paperwork is still fresh costs far less than untangling a missed Form 926 years later under an open assessment window.
Have questions about a transfer you already made to a foreign corporation, or one you are about to fund? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRC Section 6038B, Cornell Law School LII
- Treasury Regulation 1.6038B-1, Cornell Law School LII
- IRS, Instructions for Form 926
- IRS, Form 926 (Rev. November 2018)
- IRS, About Form 926
- IRC Section 367, Cornell Law School LII
- IRC Section 6501, Cornell Law School LII
- IRS, Delinquent International Information Return Submission Procedures