- 1 Form 926
- 2 Transfers of Cash
- 3 Transfers of Stock or Securities
- 4 Distributions by Domestic Liquidating Corporations
- 5 When is Form 926 Filed (Procedurally)?
- 6 Form 926 Exceptions (Who Does Not Have to File it?)
- 7 Penalties for Failure to File the Form 926
- 8 How to Reduce or Avoid International Reporting Penalties?
- 9 Golding & Golding, A PLC
Form 926 Instructions – IRS Form 926 Example Analysis (2018)
Form 926 is a less common, but equally important international IRS Tax Form for U.S. Taxpayers who transfer property into a Foreign Corporation.
Form 926 is not limited to individuals. And, unless an exception, exclusion, or limitation applies, IRS Form 926 must be filed by any of the following that meet the reporting threshold requirements:
- U.S. Citizen
- U.S. Resident
- Domestic Corporation
- Domestic Estate
- Domestic Trust
- Domestic Partnership (special rules)
Transfers of Cash
Just because a person transfers “cash” to a foreign corporation does not automatically mean they have a Form 926 filing requirement.
“A U.S. person that transfers cash to a foreign corporation must report the transfer on Form 926 if (a) immediately after the transfer, the person holds directly or indirectly, at least 10% of the total voting power or the total value of the foreign corporation, or (b) the amount of cash transferred by the person to the foreign corporation during the 12-month period ending on the date of the transfer exceeds $100,000. See Regulations section 1.6038B-1(b)(3).
In other words, in order to qualify for filing 926 following a cash transfer, the transferor must either:
- Own 10%; or
- Transferred more than $100,000 over 12-months
Transfers of Stock or Securities
A U.S. transferor must file a Form 926 with respect to a transfer of stock or securities in all cases in which a GRA is filed under Regulations section 1.367(a)-8.
*These rules are very complex and technical in nature.
Distributions by Domestic Liquidating Corporations
These rules are also very complex in nature, but as provided by the IRS:
A domestic liquidating corporation must file a Form 926 with respect to a distribution of property in complete liquidation under section 332 to a foreign distributee corporation that meets the stock ownership requirements of section 332(b).
If this above-reference threshold is met, then other requirements must be met as well.
When is Form 926 Filed (Procedurally)?
Unlike some other international tax/reporting forms, Form 926 must be filed at the time the transferor files his or her U.S. tax return.
if spouse file tax returns together (jointly, MFJ), then the form can be filed jointly.
Form 926 Exceptions (Who Does Not Have to File it?)
In some circumstances, as person may be exempt from reporting Form 926.
Exchanges of Stock/Boot
In some limited situations, when the exchange also involves the sale/exchange of stock and Boot, there is a limited exception(s) when the person meets additional requirements as well.
Owns LESS than 5% Voting and Total Value AND:
The U.S. transferor qualified for nonrecognition treatment with respect to the transfer, or The U.S. transferor is a tax-exempt entity and the income was not unrelated business income, or The transfer was taxable to the U.S. transferor under Regulations section 1.367(a)-3(c) and such person properly reported the income from the transferor on its timely filed return (including extensions) for the tax year that includes the date of transfer, or The transfer is considered to be to a foreign corporation solely by reason of Regulations section 1.83-6(d)(1) and the fair market value of the property transferred did not exceed $100,000.
Owns MORE than 5% Voting and Total Value AND:
The U.S. transferor is a tax-exempt entity and the income was not unrelated business income, or The transfer was taxable to the U.S. transferor and such person properly reported the income from the transfer on its timely filed return, or The transfer is considered to be to a foreign corporation solely by reason of Regulations section 1.83-6(d)(1) and the fair market value of the property transferred did not exceed $100,000.
Penalties for Failure to File the Form 926
As provided by the IRS:
If a taxpayer fails to comply with section 6038B, the penalty equals 10% of the fair market value of the property at the time of the transfer. The penalty will not apply if the failure to comply is due to reasonable cause and not to willful neglect. The penalty is limited to $100,000 unless the failure to comply was due to intentional disregard. Moreover, the period of limitations for assessment of tax upon the transfer of that property is extended to the date that is 3 years after the date on which the information required to be reported is provided.
Section 6662(j) Penalty For tax years beginning after March 18, 2010, a 40% penalty may be imposed on any underpayment resulting from an undisclosed foreign financial asset understatement. No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See sections 6662(j) and 6664(c) for additional information.
How to Reduce or Avoid International Reporting Penalties?
In order to reduce or avoid penalties, you may be able to qualify for Tax Amnesty/Voluntary Disclosure or Reasonable Cause.
Golding & Golding, A PLC
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
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