Form 926 Reporting Transfers to Foreign Corporations: Avoiding Harsh Penalties

Description

Section 6038 requires U.S. persons to make an information report to the IRS when making certain transfers of property to non-U.S. corporations in certain “non-recognition” transactions, as specified in Section 367. While the Code Section and regulatory guidance is intended to prevent taxpayers from shifting appreciated property to foreign jurisdictions to avoid tax, the reporting requirements apply whether or not the transferred asset has appreciated in value.

Taxpayers making these transfers must file Form 926 and include the form with their individual income tax return. The filing requirements apply for both cash and tangible personal property, if the transfers involve amounts over the statutory threshold and the transferor holds more than 10% vote or value of the foreign corporation.

The information required on Form 926 is extensive, and the penalties for noncompliance are harsh, up to 10% of the market value of the asset transferred. Additionally, the IRS is utilizing Form 926 to verify consistency with other foreign reporting requirements, so a failure to file a complete and accurate Form 926 can result in other tax consequences—such as FATCA penalties—as the IRS cross-checks information, as well as extending the statute of limitation until the reporting is complete.

Listen as our experienced panel provides a thorough and practical guide to completing Form 926 to report property contributions to foreign corporations.