Absolutely. U.S. citizens and U.S. residents who transfer property to a foreign corporation are required to report these transactions to the Internal Revenue Service (IRS) using IRS Form 926. This reporting obligation exists to ensure transparency when assets move outside U.S. tax jurisdiction and applies even when no immediate tax is due.
Failure to file IRS Form 926 can result in significant penalties, making compliance essential for Americans with international business or investment activities.
What Is IRS Form 926?
IRS Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, is used to report certain transfers of property to foreign corporations. The form allows the IRS to track outbound transfers that could otherwise avoid U.S. tax reporting.
The requirement applies to transfers such as:
- Cash contributions
- Real estate
- Intellectual property
- Equipment or inventory
- Securities or partnership interests
The IRS requires disclosure even if the transfer was part of business expansion, restructuring, or capitalization.
When Is IRS Form 926 Required?
You must file IRS Form 926 if either of the following conditions is met during the tax year:
- The total value of property transferred exceeds USD $100,000, or
- The transfer results in the U.S. person owning 10 percent or more of the foreign corporation (directly or indirectly)
These thresholds apply regardless of whether the transfer is taxable.
Sample Scenario:
A U.S. citizen living abroad forms a foreign corporation in Singapore to operate an international consulting business. During the year, the individual transfers:
- $120,000 in cash to capitalize the company
- Proprietary software developed in the U.S.
- Office equipment valued at $15,000
As a result of the transfer, the U.S. citizen owns 100 percent of the foreign corporation.
Why IRS Form 926 Is Required:
- The total value of property transferred exceeds USD $100,000
- The transfer results in ownership of more than 10 percent of the foreign corporation
Even if no immediate tax is owed and the transfer qualifies for non-recognition treatment, the taxpayer must file IRS Form 926 with their U.S. tax return. Failure to do so could trigger penalties of up to 10 percent of the transferred value.
Who Must File IRS Form 926?
The filing requirement applies to:
- U.S. citizens
- U.S. residents
- Green Card holders
- U.S. entities transferring property to foreign corporations
It applies whether the foreign corporation is newly formed or already operating.
What Types of Transactions Trigger Reporting?
Common situations that require IRS Form 926 include:
- Contributing assets to a foreign startup
- Transferring property to a foreign subsidiary
- Moving intellectual property offshore
- Capitalizing a foreign corporation with U.S.-owned assets
- Corporate reorganizations involving foreign entities
Even non-cash transfers can trigger reporting.
Does Filing IRS Form 926 Mean You Owe Tax?
Not necessarily.
Some transfers qualify for non-recognition treatment, meaning no immediate tax is due. However, the IRS still requires reporting to assess:
- Whether the transfer qualifies for tax deferral
- Future income attribution
- Potential gain recognition
Filing the form does not automatically create a tax liability.
How and When to File IRS Form 926
IRS Form 926 must be:
- Filed with your annual U.S. income tax return
- Submitted by the same deadline as Form 1040 (including extensions)
The form includes details such as:
- Description and fair market value of the property
- Date of transfer
- Percentage of ownership before and after the transfer
- Basis information
Accuracy is critical, as valuation errors can lead to IRS scrutiny.
Penalties for Not Filing IRS Form 926
The IRS can impose severe penalties for noncompliance, including:
- 10 percent of the fair market value of the property transferred
- Maximum penalty generally capped at $100,000 per transaction
- No cap if the failure to file was intentional
Penalties can apply even if no tax was owed on the transfer.
How IRS Form 926 Fits Into Broader Foreign Reporting
IRS Form 926 often overlaps with other international reporting obligations, such as:
Key Foreign Entity Forms to Know
- Form 5471
Required for U.S. persons who own or control foreign corporations. This form reports ownership, income, balance sheets, and transactions. - Form 8865
Applies to U.S. persons involved in foreign partnerships. - Form 8858
Used to report foreign disregarded entities or foreign branches owned by U.S. taxpayers. - Form 8938 (FATCA)
Required when foreign financial assets exceed IRS thresholds. - FBAR (FinCEN Form 114)
Mandatory when aggregate foreign account balances exceed $10,000 at any point during the year.
IRS Form 926 is often just one piece of a broader foreign entity reporting framework. U.S. taxpayers involved with foreign corporations should be aware of additional compliance requirements. Missing one form can increase scrutiny across all filings.
Common Mistakes Taxpayers Make
Taxpayers often fail to file IRS Form 926 because they:
- Assume transfers between owned entities are exempt
- Believe non-cash transfers don’t count
- Underestimate property value
- Are unaware of the ownership threshold
Early planning helps avoid these costly errors.
IRS Form 926 Compliance Checklist
Use this checklist to determine whether you must file IRS Form 926 and to ensure proper compliance:
Step 1: Identify the Transfer
- ☐ Did you transfer cash or property to a foreign corporation?
- ☐ Was the transfer direct or indirect?
- ☐ Did it occur during the current tax year?
Step 2: Evaluate the Thresholds
- ☐ Did total transfers exceed USD $100,000 in the year?
- ☐ Did the transfer result in 10 percent or greater ownership?
- ☐ Did ownership increase due to the transfer?
Step 3: Gather Required Information
- ☐ Description of transferred property
- ☐ Fair market value at the time of transfer
- ☐ Adjusted tax basis
- ☐ Date of transfer
- ☐ Ownership percentage before and after
Step 4: File Correctly
- ☐ Attach IRS Form 926 to your annual U.S. tax return
- ☐ File by the standard or extended due date
- ☐ Retain valuation and supporting documentation
Step 5: Review Related Filing Obligations
- ☐ Form 5471 (foreign corporation ownership)
- ☐ Form 8938 (foreign financial assets)
- ☐ FBAR (FinCEN Form 114), if applicable
Completing this checklist annually can help prevent overlooked filings and costly penalties.
Why the IRS Focuses on Foreign Entity Reporting
The IRS closely monitors outbound transfers and foreign ownership because they can:
- Shift income outside U.S. tax jurisdiction
- Reduce taxable income if improperly structured
- Obscure ownership or asset movement
Failure to report foreign entities consistently increases audit risk and penalty exposure.
Common Pitfalls in Foreign Entity Compliance
Taxpayers frequently encounter issues when they:
- File Form 926 but omit Form 5471
- Assume non-cash transfers don’t require reporting
- Fail to report increases in ownership
- Miss FBAR or FATCA filings connected to the entity
Foreign reporting forms are interconnected — missing one can trigger scrutiny of all filings.
Final Compliance Takeaway
Transferring property to a foreign corporation is not simply a business decision — it is a reportable U.S. tax event. IRS Form 926 plays a critical role in documenting these transfers, even when no immediate tax is due.
For U.S. citizens and residents with foreign entities, proactive reporting, proper valuation, and coordinated filing across all required forms are essential to staying compliant and avoiding penalties.
