Published on: April 24, 2020 Last modified: July 7, 2020

IRS Form 926: What You Need To Know

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    During the last year, did you transfer property to a foreign corporation? Or are you planning to make a transfer this year? If you are making this type of transfer, you will need to file IRS Form 926.

    If you want to understand when you need to file Form 926 and how to do it, keep reading for a detailed breakdown of Form 926 and its provisions.  This includes one provision that appears to gets rid of the statute of limitations for any penalties for not filing Form 926.     

    What Is Form 926?

    All citizens and residents of the United States are taxed on their domestic and foreign income. To properly tax foreign income, the IRS requires taxpayers to file different forms that provide information about a taxpayer’s foreign assets and transactions.  

    One of these forms is Form 926. Form 926 is used by a taxpayer to report property transfers to a foreign corporation. 

    When Do I File Form 926?

    Form 926 is filed as part of your tax return. Keep in mind, if you have foreign transactions or assets, you may need to file additional forms. Some need to be filed with your tax return. Others, like FinCEN Form 114, need to be filed separately.   

    Who Needs to File Form 926?

    The following taxpayers need to file Form 926 as part of their tax return:

    • All citizens and residents of the United States.
    • All domestic corporations, estates, and trusts.

    There are special rules for the following taxpayers:

    • If a partnership makes the transfer, each domestic partner must file Form 926 and report their proportional share of the partnership’s property. The partnership does not need to file Form 926.
    • Spouses can file a single form if they file a joint tax return.

    Does It Need to Be Filed for All Types of Property Transfers?

    While Form 926 needs to be filed for nearly all types of property transfers, there are additional rules for certain types of property being transferred.  Some of these situations can be a little tricky.  If you think they might apply, you might want to seek some help from a tax professional like Silver Tax Group. 

    If You Are Transferring Cash:

    Cash transfers have special rules. Form 926 must be filed if cash is transferred to a foreign corporation in the following circumstances:

    • If immediately after the cash transfer, the person directly or indirectly holds at least ten percent of the total voting power or value of the corporation, or
    • If the amount of cash transferred during the twelve-month period ending on the transfer date is more than $100,000.

    If You Are Transferring Securities or Stock:

    Form 926 should be filed for a transfer of securities or stock when a gain recognition agreement is filed.   

    If You Are a Domestic Liquidating Corporation and Making a Distribution:

    If you distribute property as part of a complete liquidation to a foreign distributee corporation, you need to file Form 926.

    If You Are a Domestic Corporation Distributing Stock or Securities to a Foreign Controlled Corporation:

    If the distribution is made to someone who isn’t a U.S. citizen, resident, or domestic corporation, you need to file Form 926.    

    Are There Any Exceptions Where You Don’t Have to File It?

    Even if you meet the requirements listed above, there are some situations where you don’t need to file Form 926.  Similar to the last section, some of these situations can be a little tricky, so you might want to seek some help from a tax professional. 

    You Exchange Stock:

    • If you exchange stock of a foreign corporation in a recapitalization.
    • If you exchange stock of a domestic or foreign corporation for stock of a foreign corporation under an asset reorganization that isn’t treated as an indirect stock transfer

    You Own Less of Five Percent of Stock Immediately After the Transfer and One of the Following Happens:

    • You qualify for nonrecognition treatment with respect to the transfer.
    • You are a tax-exempt entity and the income isn’t unrelated business income.
    • The transfer is taxable under Regulations section 1.367(a)-3(c) and you properly reported the income on your tax return.
    • The transfer is to a foreign corporation solely for employee compensation and the property’s fair market value didn’t exceed $100,000.

    You Own More Than Five Percent of Stock and the Transfer and One of the Following Happens:

    • You are a tax-exempt entity and the income isn’t unrelated business income.
    • The transfer was taxable to the transferor and they properly reported it on their tax return.
    • The transfer is to a foreign corporation solely for employee compensation and the property’s fair market value didn’t exceed $100,000.

    What Happens If You Don’t File Form 926?

    The Big Mystery: Is There A Statute Of Limitations On IRS Form 926?

    It’s important to file Form 926 as part of your tax return before the due date. As mentioned above, there might be some situations where you need advice about filing it. If you have questions, make sure to speak to a tax professional before the due date. 

    If you don’t file it, you may be penalized for non-disclosure. The penalty is ten percent of the fair market value of the property at the time of transfer. You can avoid a penalty if the IRS finds reasonable cause why you didn’t file Form 926.

    How Long Is the Statute of Limitations for Not Filing?

    One of the funny things about Form 926 is that there appears to be no statute of limitations for failing to file Form 926. The IRS has statutes of limitations on the penalties they can impose on a taxpayer. This means that after a certain period of time has passed, the IRS can no longer penalize the taxpayer.     

    However, there is an interesting statute of limitations if you don’t file Form 926. The IRS says if you fail to file, “the period of limitations for assessment of tax upon the transfer of that property is extended to the date that is three years after the date on which the information required to be reported is provided.”

    What does this mean? 

    It means that the statute of limitations doesn’t end until three years after the date you file Form 926.  But the penalty is for not filing Form 926. Because you never filed it, the statute of limitations hasn’t started yet. This means the IRS could assess a penalty at any time, even 20 years after you were supposed to file!

    What Happens If You Misreport on Form 926?

    It’s also important to accurately report everything on 926. If you underreport on Form 926 and that leads to a tax underpayment, you may receive a 40% penalty.  You can avoid a penalty if you can show that the misrepresentation was due to reasonable cause and you acted in good faith. 

    Have Questions About Form 926? Contact Us Today!

    We know knowing which forms to file with your tax return can be tough. If you have questions about IRS Form 926, contact us to speak to a tax attorney who understands Form 926 and any tax issues surrounding foreign property transfers.   

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