IRS Form 926 explained for US expats
IRS Form 926 is used by US taxpayers to report certain transfers of cash or other property to a foreign corporation. Most US expats will never need to file it, but if you start, fund, or transfer assets to a foreign company, Form 926 may be required even if you do not owe additional tax.
If you’re a US citizen living abroad, there’s a good chance you’ve never heard of Form 926 until now. Unlike the FBAR or Form 8938, Form 926 only applies to specific transactions involving foreign corporations, making it one of the less common, but potentially significant international reporting requirements.
This guide explains Form 926, who it applies to, when it must be filed, and the situations where US expats are most likely, and least likely, to encounter it.
Emmanuel, an IRS Enrolled Agent and CPA with 15 years of expat tax experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working abroad. *Schedule a consultation with Emmanuel today.
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Table of Contents
Do US expats need IRS Form 926?
Usually not. Most US expats only need IRS Form 926 if they transfer cash or other property to a foreign corporation in a transaction that meets specific IRS reporting rules.
Simply living overseas does not create a Form 926 filing requirement. Neither does opening a foreign bank account, earning a salary from a foreign employer, or purchasing property abroad. Those situations may involve other US tax reporting obligations, but they generally do not require Form 926.
Instead, Form 926 is transaction-based. It typically comes into play when a US person contributes money or other property to a foreign corporation, particularly when establishing, funding, or restructuring an overseas business.
Does your situation likely require Form 926? Common expat scenarios
|
Situation |
Form 926 likely required? |
|
You formed a UK Ltd, Australian Pty Ltd, or similar foreign corporation |
Maybe |
|
You transferred cash to capitalize your foreign company |
Maybe |
|
You contributed business equipment or inventory to your foreign corporation |
Often |
|
You transferred intellectual property, such as software or patents |
Often |
|
You sent money between your own personal bank accounts |
No |
|
You receive wages from a foreign employer |
No |
|
You purchased foreign stocks through a brokerage account |
Usually no |
|
You bought a house overseas |
No |
Note: Form 926 is not required simply because you own a foreign company. It is generally triggered by specific transfers of property to that company.
What is IRS Form 926?
IRS Form 926 reports certain transfers of property from a US person to a foreign corporation. It allows the IRS to monitor outbound transfers that may have US tax consequences, even when no immediate tax is payable.
The form’s official title is Return by a US Transferor of Property to a Foreign Corporation.
The IRS uses Form 926 to track transactions where US taxpayers move valuable assets into foreign corporations. Depending on the facts, these transfers may affect future US taxation or involve rules designed to prevent income or appreciated property from leaving the US tax system without appropriate reporting.
That does not mean every reported transfer creates additional tax. In many situations, Form 926 is simply an information return.
What kinds of property can be reported?
Depending on the transaction, reportable property may include:
- Cash
- Business equipment
- Inventory
- Corporate stock
- Securities
- Patents
- Copyrights
- Trademarks
- Other tangible or intangible business assets
The exact reporting rules vary depending on the type of property involved and the applicable tax provisions. One reason Form 926 creates confusion is that the word property has a much broader meaning in tax law than it does in everyday conversation. It doesn’t just refer to real estate. Cash, shares, equipment, and intellectual property may all qualify as reportable property under the right circumstances.
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Who must file Form 926?
Form 926 may be required for US persons who transfer qualifying property to a foreign corporation. According to the IRS, potential filers include:
- US citizens
- US residents
- Domestic corporations
- Domestic estates
- Domestic trusts
However, being an expat alone does not create a filing obligation. The reporting requirement arises because of the transaction itself, not because you live outside the United States.
Example 1
Emma, a US citizen living in London, accepts a job with a British employer. She receives a salary, maintains a UK bank account, and rents an apartment. Form 926 is generally not required.
Example 2
Emma later forms a UK limited company to operate her consulting business. She contributes US$150,000 in cash to capitalize the company.
Because Emma transferred more than US$100,000 in cash to a foreign corporation, Form 926 would generally be required, assuming no exception applies.
When is Form 926 required?
Form 926 is generally required when a US person transfers certain property to a foreign corporation and the transaction meets the reporting requirements established by the IRS.
- Starting a foreign company: Simply forming a foreign company does not automatically mean you must file Form 926. The filing requirement generally arises when you transfer cash or other property to the company and the transaction meets the IRS reporting rules.
- Contributing cash to your foreign corporation: Cash contributions are one of the most common reasons US expats file Form 926. Reporting may be required when:
- you own at least 10% of the foreign corporation’s voting power or value,
- or if you and related persons transfer more than US$100,000 in cash to the corporation during the 12-month period ending on the transfer date.
- Contributing business assets: Form 926 isn’t limited to cash. Transferring business assets to a foreign corporation may also trigger reporting. Examples include:
- Machinery
- Equipment
- Inventory
- Securities
- Shares of stock
These situations often arise when someone moves an existing business into a newly formed foreign corporation.
- Transferring intellectual property: Special rules may apply when intellectual property is transferred to a foreign corporation. Examples include:
- Software
- Patents
- Trademarks
- Copyrights
- Proprietary business processes
These transactions often involve additional tax considerations beyond the reporting requirement itself.
- Corporate reorganizations: Some cross-border restructurings and corporate reorganizations also require Form 926. Examples include:
- Mergers involving foreign corporations
- Certain business restructurings
- Corporate asset transfers
- Other qualifying reorganization transactions
These situations are generally encountered by business owners with more complex international operations.
What transfers are reported on Form 926?
Form 926 may be required when you transfer certain cash or property to a foreign corporation. However, not every transfer is reportable. For tax purposes, the term “property” is much broader and can include cash, business assets, stock, and intellectual property.
The table below outlines common examples.
|
Type of transfer |
Form 926 usually required? |
Notes |
|
Cash contribution |
Maybe |
Depends on IRS reporting thresholds and ownership rules. |
|
Business equipment |
Often |
Common when funding a new foreign corporation. |
|
Inventory |
Often |
May be reportable if contributed to the company. |
|
Corporate stock |
Sometimes |
Depends on the transaction and applicable IRS rules. |
|
Intellectual property |
Often |
Special rules may apply to patents, software, trademarks, and copyrights. |
|
Personal salary |
No |
Wages paid by an employer are not transfers to a corporation. |
|
Money sent to your own overseas bank account |
No |
This is generally not a transfer to a foreign corporation. |
|
Buying foreign real estate personally |
No |
Purchasing property for yourself does not usually trigger Form 926. |
Example
David moves to Canada and starts a corporation for his engineering business. He contributes:
- US$120,000 in cash
- Company-owned equipment
- Design software he developed
These transactions may each require separate consideration under the Form 926 rules because multiple types of property were transferred to the corporation.
Situations where Form 926 is usually not required
Many US expats assume any overseas financial activity requires Form 926. In reality, the form applies to a much narrower set of transactions.
If none of the following involve transferring property to a foreign corporation, Form 926 is generally not required.
Common situations that usually don’t require Form 926
- Opening a foreign bank account
- Sending money between your own bank accounts
- Receiving a salary from a foreign employer
- Purchasing a home overseas
- Buying foreign stocks through a brokerage account
- Receiving dividends from foreign investments
- Holding foreign mutual funds
- Paying overseas living expenses
- Receiving rental income from foreign property
These activities may still trigger other US reporting requirements, but they generally don’t fall within the purpose of Form 926.
How do I file IRS Form 926?
Form 926 is attached to your federal income tax return for the year the transfer occurred. It is not filed as a separate return. If you determine that Form 926 applies to your transaction, the filing process is relatively straightforward.
How to file Form 926
Step 1. Complete Form 926
Provide information about:
- The US transferor
- The foreign corporation
- The property transferred
- The date of the transfer
- The fair market value of the property
- Any applicable reporting exceptions
Step 2. Attach it to your federal tax return
Individuals generally attach Form 926 to Form 1040. Other taxpayers attach it to their applicable federal income tax return, such as:
- Form 1120
- Form 1041
Step 3. File your return by the deadline
File your tax return, including Form 926, by the applicable due date or approved extension.
Filing tip
Because Form 926 often accompanies other international reporting forms, many taxpayers prepare it at the same time as forms such as:
Preparing these forms together can help ensure the reported information remains consistent across your return.
When is Form 926 due?
Form 926 is generally due on the same date as your federal income tax return, including any approved filing extension. There is no separate annual filing deadline for Form 926.
For most US expats
If you’re required to file Form 926, you’ll generally submit it together with your:
- Form 1040
- Form 1120
- Other applicable federal return
Any extension that applies to your federal tax return generally also applies to Form 926 because it is attached to that return.
What happens if I don’t file Form 926?
Failing to file Form 926 when required may result in significant IRS penalties, even if the transfer itself did not create additional tax.
Because Form 926 is an international information return, the IRS treats compliance seriously. Potential consequences may include:
- A penalty that is generally 10% of the fair market value of the property transferred.
- The penalty is generally limited to US$100,000 unless the failure was due to intentional disregard. Reasonable cause relief may be available
- Additional IRS scrutiny if the omitted transaction affects other international reporting obligations.
Depending on the circumstances, penalty relief may be available if you can demonstrate reasonable cause for failing to file.
Example
A US entrepreneur contributes qualifying assets to a newly formed foreign corporation but doesn’t realize Form 926 is required. Several years later, the omission is identified during an IRS review.
Even though no additional tax is due on the transfer itself, penalties may still apply because the required information return wasn’t filed.
How is Form 926 different from other international tax forms?
Form 926 reports certain transfers of property to a foreign corporation. It does not replace other international information returns, and you may need to file more than one form for the same business or investment.
Many US expats encounter Form 926 alongside forms such as Form 5471, Form 8865, Form 8938, or the FBAR. Although these forms all relate to international activities, they each serve a different purpose.
Form 926 compared with other common international forms:
|
Form |
What it reports |
Common trigger |
|
Form 926 |
Certain transfers of cash or property to a foreign corporation |
Funding or contributing assets to a foreign corporation |
|
Form 5471 |
Information about certain foreign corporations |
Ownership or control of a foreign corporation |
|
Form 8865 |
Information about certain foreign partnerships |
Ownership or transfers involving a foreign partnership |
|
Form 8938 |
Specified foreign financial assets |
Assets exceeding IRS reporting thresholds |
|
Foreign financial accounts |
Aggregate foreign account balances exceeding US$10,000 at any time during the year |
Frequently Asked Questions
Does forming a foreign company automatically require Form 926?
No. Simply registering or incorporating a foreign company does not automatically trigger Form 926.
The filing requirement generally arises when you transfer qualifying cash or other property to the foreign corporation and the transaction meets the applicable IRS reporting rules.
Does Form 926 create additional tax?
Not necessarily. Form 926 is primarily an information return. Filing the form does not automatically mean you owe tax, although the underlying transaction may have separate tax consequences depending on the circumstances.
Can I file Form 926 electronically?
Generally, yes, if your federal income tax return is filed electronically and your tax software supports the form. If your return is filed on paper, Form 926 should generally be attached to the paper return.
Can I amend my tax return to add Form 926?
Yes. If you discover that Form 926 should have been filed with a previously submitted return, you may generally file an amended return with the required form attached.
Depending on your situation, it may also be appropriate to seek professional advice regarding any potential penalty exposure or available relief.
What if I transferred property several years ago and never filed Form 926?
If you discover a missed filing requirement, don’t assume it’s too late to correct it. The appropriate next steps depend on factors such as:
- when the transfer occurred
- whether other international forms were filed correctly
- whether penalties may apply
- whether any IRS compliance procedures are available
Because these situations can become technical, obtaining advice before filing amended returns is often worthwhile.
Where can I find the official Form 926 instructions?
The IRS provides both Form 926 and the official Instructions for Form 926 on its website. Reviewing the instructions alongside your transaction can help clarify whether any exceptions or special reporting rules apply.
