The Form 926, ‘Return by a U.S. Transferor of Property to a Foreign Corporation’, is an informational form that is required for certain transactions by US person’s with a foreign corporation. The primary purpose of the filing is to ensure that assets with appreciated values are taxed in the US despite being transferred outside the US. To achieve this, Form 926 is required for certain transfers of tangible or intangible property to a foreign corporation by a US person.
Who must file the Form 926
US Citizens, residents, domestic corporations, and domestic estates and trusts must file the Form 926 if they are a part of a reportable transaction with a foreign corporation. If a partnership is a party of a reportable transaction, the domestic partners of the partnership must file the Form 926 based on their proportionate share.
The Form 926 is filed with the U.S. transferor's income tax return for the tax year that includes the date of the transfer.
Reportable transfers are those described in section 6038B(a)(1) (A), 367(d), or 367(e). This would include:
§ 332 - The complete liquidation of subsidiary
§ 351 - Transfers to a corporation controlled by the transferor
§ 354 - Exchanges of stock and securities in certain organizations.
§ 355 - Distribution of stock or securities of a controlled corporation.
§ 356 - Additional consideration in certain distributions (relating to 354 and 355 transactions) § 361 - Exchanges of property by a corporation solely in exchange for stock in a reorganization.
§ 367(d) - Outbound transfers of intangibles
Exceptions to Filing
There are exceptions to filing the Form 926. For example, in some situations recapitalizations under §354 or §356, Distributions under §355, and ownership less than 5% will not require a filing. Please check the form instructions for the details on these exceptions.
Transfers of Cash
Certain transfers of cash to a foreign corporation may have to be reported on Form 926. The transfer must be reported if
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
the amount of cash transferred by the person to the foreign corporation during the 12-month period ending on the date of the transfer is more than $100,000.
Common Transactions Requiring a Form 926
Filing the Form 926 is an important part of some very common transactions by US persons, an erroneously forgotten filing can lead to serious fines and penalties.
For example, all of these transactions could require a Form 926:
Transfers related to the set up of a new CFC,
Converting a foreign branch to a corporation,
Checking the box on a Disregarded entity to be treated as a CFC
Remember the Form 926 anytime a US person transacts with a foreign corporation.