Practitioner Guide

IRC 6038B and Form 926: U.S. Transferor of Property to a Foreign Corporation

Triggering thresholds, property categories, the 10% FMV penalty, the $100,000 cap, GRA coordination, and the indefinite statute risk under IRC 6501(c)(8).

AmericasTax.com International Tax Compliance Last reviewed: July 2026

IRC 6038B and Form 926: The Reporting Framework

When a U.S. person transfers property to a foreign corporation in a Section 351 incorporation or a Section 368 reorganization, the transaction does not simply disappear into the foreign tax system. IRC 6038B imposes a mandatory reporting obligation -- Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation -- and backs it with a penalty calibrated to 10% of the fair market value of the transferred property. For high-value transfers, the numbers are consequential.

Form 926 sits at the intersection of two distinct compliance frameworks: the nonrecognition rules under IRC 367 outbound transfers and gain recognition agreements, which govern whether the transferor must recognize gain on the exchange, and the reporting rules under IRC 6038B, which govern disclosure of the transfer regardless of whether gain is recognized. A transferor who avoids gain recognition through a GRA still has a Form 926 filing obligation. A transferor who believes the transfer is fully tax-free still has a Form 926 filing obligation. The two analyses are independent, and conflating them is the most common source of failure.

This guide addresses the mechanics of IRC 6038B compliance: who must file, what property is covered, how the penalty is computed, how GRA coordination works in practice, and how to close the open statute risk that non-filing creates.

Triggering Thresholds: Who Must File Form 926

IRC 6038B(a)(1) requires every U.S. person who transfers property to a foreign corporation in an exchange described in IRC 332, 351, 354, 355, 356, or 361 to file Form 926. In practice, the transactions that most frequently give rise to Form 926 obligations are IRC 351 formations (contribution of property to a newly formed foreign corporation in exchange for stock) and IRC 361 transfers in the context of Section 368 reorganizations.

Not every transfer triggers Form 926. Treas. Reg. 1.6038B-1(b)(3) limits the filing obligation to transferors who satisfy at least one of two independent thresholds:

  • The 10% ownership test: The transferor holds, immediately after the transfer, 10% or more of the total voting power or 10% or more of the total value of all classes of stock of the foreign corporation.
  • The $100,000 aggregate value test: The aggregate fair market value of property transferred by the transferor to the foreign corporation during the 12-month period ending on the transfer date exceeds $100,000.
Amber Alert: Triggering Thresholds Both thresholds are independent. Satisfying either one alone is sufficient to require Form 926. A minority transferor who holds only 4% of the foreign corporation post-transfer but transferred $150,000 of property must still file. A 50% owner who transferred only $30,000 of property must also still file. Practitioners should evaluate both tests for every outbound transfer.

The 10% ownership test looks to post-transfer stock, applying the constructive ownership rules of IRC 318 and IRC 958. A taxpayer who owns stock through a partnership, trust, or related entity may meet the 10% threshold even if direct ownership is below the threshold. For purposes of the $100,000 aggregate value test, all transfers to the same foreign corporation in the 12-month window are aggregated, whether or not they are related transactions or involve the same type of property.

For the relationship between IRC 351 tax-free incorporation mechanics and these reporting triggers, practitioners should review the IRC 351 control test separately. A failed Section 351 exchange (where the transferors do not collectively hold 80% of the foreign corporation immediately after the transfer) does not eliminate the Form 926 obligation if the individual transferor meets either of the two thresholds; it merely changes the gain recognition treatment.

Property Categories: Different Rules for Different Assets

Form 926 covers all categories of property transferred to a foreign corporation in a qualifying exchange, but the downstream compliance consequences differ materially by property type. The table in Section 5 sets out the full comparison. Key distinctions are as follows.

Tangible Property

Tangible personal property and real property transferred to a foreign corporation are reported on Form 926, Part II. If the property qualifies for nonrecognition under IRC 351 and IRC 367(a)(1) applies (which generally overrides nonrecognition for outbound transfers of tangible property used in a trade or business outside the United States), the transferor must recognize gain unless an exception applies (such as the active trade or business exception under Treas. Reg. 1.367(a)-2) or a GRA is filed. The Form 926 disclosure obligation is independent of whether any exception eliminates the gain.

Intangible Property

Transfers of intangible property (patents, copyrights, know-how, trademarks, trade secrets, goodwill, going concern value, and customer lists) trigger both Form 926 disclosure and the IRC 367(d) deemed royalty regime. Under IRC 367(d), the transferor is treated as having sold the intangible for a series of deemed royalty payments equal to a reasonable amount, commensurate with the income attributable to the intangible, over the useful life of the property or 20 years, whichever is shorter.

Amber Alert: Intangible Property Special Rules IRC 367(d) deemed royalty rules apply alongside Form 926 for every intangible property transfer to a foreign corporation. Practitioners must coordinate the deemed royalty schedule (reported annually on the transferor's return) with the one-time Form 926 disclosure at the time of transfer. The FMV reported on Form 926 becomes the starting point for IRC 482 IRC 482 transfer pricing documentation analysis as well. Both sets of rules must be addressed before closing the transaction.

Cash Transfers

Cash contributions to a foreign corporation count toward the $100,000 aggregate threshold. Once the threshold is crossed, the Form 926 must report all cash transfers to that foreign corporation during the 12-month window. Cash transfers are reported in Part IV of Form 926. Note that a cash contribution alone (not accompanied by a stock transfer) may still be characterized as a contribution to capital or a disguised sale under Treasury regulations, and the characterization affects the reporting position on Form 926.

Securities

Transfers of stock and securities to a foreign corporation in a Section 354 or 356 exchange (for example, an A or B reorganization where the target's shareholders exchange stock of a U.S. target for stock of a foreign acquirer) require separate analysis under IRC 367(b). The exchanging shareholder may be required to include a deemed dividend in income ("all earnings and profits amount") as a condition of nonrecognition. Form 926 is filed for the transferor-corporation in a C or D reorganization where assets move to a foreign corporation; the shareholder-level exchange is governed by different provisions.

Partnership Interests

The transfer of a partnership interest to a foreign corporation in an IRC 351 exchange creates a layered analysis. The partnership interest is treated as a proportionate transfer of the partnership's underlying assets, each of which must be analyzed under IRC 367(a) and IRC 367(d) based on its character. Treas. Reg. 1.367(a)-1(c)(3) contains the look-through rule applicable to partnership interests transferred to foreign corporations.

The 10% FMV Penalty and the $100,000 Cap

IRC 6038B(c) imposes a penalty equal to 10% of the fair market value of the transferred property for failure to file Form 926, or for filing a materially incomplete or inaccurate Form 926. The FMV used for the penalty calculation is the FMV of the property as of the date of transfer.

For non-willful failures, the penalty is capped at $100,000 per transfer under IRC 6038B(c)(2). Each transfer event that independently triggers a Form 926 obligation is assessed separately, so a taxpayer with three separate qualifying transfers in different tax years faces a potential $100,000 cap per transfer, not a single aggregate cap across all transfers.

Critical: No Cap for Willful Failures The $100,000 cap applies only to non-willful failures. If the IRS determines the failure was willful, the full 10% of FMV is assessed without any ceiling. A transferor who moves $5,000,000 of property to a foreign corporation and willfully omits Form 926 faces a $500,000 civil penalty. Beyond the civil penalty, willful violations can trigger criminal referral under IRC 7201 (tax evasion, up to 5 years imprisonment) or IRC 7203 (willful failure to file, up to 1 year). The DOJ Tax Division has pursued criminal referrals in offshore structure cases where Form 926 omissions were part of a broader scheme.

The penalty is assessed per-transfer, and "transfer" is interpreted by the IRS to mean each separate exchange event with a determinable date of transfer. If a taxpayer transfers property in four quarterly installments over the same tax year, those may be treated as four transfers -- each subject to its own 10% penalty and its own $100,000 cap for non-willful failures.

The FMV determination should be documented contemporaneously. The IRS will substitute its own FMV determination if the taxpayer cannot substantiate the reported value, and a higher IRS valuation will produce a higher penalty. For intangible property, the FMV must be consistent with the comparable uncontrolled transaction (CUT) or comparable profits method under the IRC 482 regulations -- the same data package that supports the transfer pricing position also supports the Form 926 FMV disclosure.

Form 926 Obligations by Property Category

The following table summarizes the Form 926 reporting obligations, applicable penalty, GRA coordination requirements, and statute of limitations risk across the primary property categories encountered in outbound transfer planning.

Property Category FMV Threshold Penalty Rate Non-Willful Cap GRA Required 367(d) Applies SOL Risk (6501(c)(8))
Cash $100,000 aggregate 10% of FMV $100,000 No No Indefinite if unfiled
Tangible personal property (active business) 10% ownership or $100,000 10% of FMV $100,000 Optional (to avoid 367(a) gain) No Indefinite if unfiled
Tangible personal property (investment) 10% ownership or $100,000 10% of FMV $100,000 No (gain recognized) No Indefinite if unfiled
Real property 10% ownership or $100,000 10% of FMV $100,000 Optional (active business) No Indefinite if unfiled
Intangible property (patents, know-how) 10% ownership or $100,000 10% of FMV $100,000 No (367(d) applies instead) Yes (deemed royalty) Indefinite if unfiled
Goodwill and going concern value 10% ownership or $100,000 10% of FMV $100,000 No (367(d) applies) Yes (deemed royalty) Indefinite if unfiled
Securities (stock in subsidiary) 10% ownership or $100,000 10% of FMV $100,000 Possible (if 367(a) applicable) No Indefinite if unfiled
Partnership interests (look-through) 10% ownership or $100,000 10% of FMV (per asset) $100,000 (per asset) Asset-by-asset analysis If underlying assets include intangibles Indefinite if unfiled
Accounts receivable 10% ownership or $100,000 10% of FMV $100,000 No No Open until filed
Inventory 10% ownership or $100,000 10% of FMV $100,000 No (gain recognized) No Open until filed
Mixed property bundle (multiple asset types) Aggregate FMV (all property) 10% of total FMV $100,000 per transfer event Asset-by-asset determination If any intangible in bundle Indefinite if unfiled

Form 926 and GRA Coordination

The gain recognition agreement (GRA) under Treas. Reg. 1.367(a)-8 is the primary mechanism by which a U.S. transferor avoids immediate gain recognition under IRC 367(a)(1) on a transfer of appreciated tangible property to a foreign corporation in a qualifying exchange. The GRA is an agreement by the transferor to recognize gain if a triggering event occurs within a 5-year period (extended to 10 years for certain transfers to related parties). Common triggering events include the transferee foreign corporation's disposition of the transferred property, the transferor's disposition of the stock received, and certain indirect dispositions.

Amber Alert: GRA Coordination Form 926 and the GRA election are separate filing requirements with separate attachments to the same tax return. File Form 926 as Part III of the return attachments, and attach the GRA election as a separate statement per Treas. Reg. 1.367(a)-8(c)(2). An active GRA modifies the gain that would be recognized if the GRA is later triggered, but does not eliminate or reduce the Form 926 filing obligation at the time of transfer. If a GRA is triggered in a future year, the recognized gain does not retroactively cure any Form 926 failure at the time of the original transfer.

The interaction between Form 926 and the GRA creates a coordination challenge in multi-step transactions. For example, in a two-step transaction where a U.S. company first forms a foreign holding company (IRC 351), then transfers operating assets to a foreign operating subsidiary (also IRC 351), two separate Form 926 filings and two separate GRA determinations may be required. The GRAs must be filed within the time prescribed by Treas. Reg. 1.367(a)-8(c)(1): attached to the transferor's timely filed (including extensions) return for the year of the transfer. A late GRA election is not automatically treated as a valid election, and a defective GRA means IRC 367(a)(1) gain is immediately recognized.

Annual reporting on the GRA (Form 8838 or as a statement attachment) continues for the GRA's term. During that period, the transferor must also file annual Form 5471/5472 foreign corporation reporting for the transferee foreign corporation (if the ownership thresholds are met), creating a persistent annual compliance obligation that can run for 5 to 10 years after the initial transfer event.

The IRC 6501(c)(8) Statute of Limitations Risk

The most consequential compliance consequence of a failure to file Form 926 is not the penalty itself -- it is the statute of limitations extension under IRC 6501(c)(8). This provision is the international tax practitioner's equivalent of a live wire: well-understood by specialists, but frequently overlooked in transactional practice.

Critical: Indefinite SOL for Unfiled Form 926 IRC 6501(c)(8) provides that the statute of limitations on the entire tax return does not begin to run until 90 days after the required international information return is filed. If Form 926 is never filed, the statute for that entire tax year never closes. The IRS can assess a deficiency for any item on the return -- not just the foreign transfer -- at any time. There is no time limit, no matter how many years have passed. The only cure is to file Form 926 (including a delinquent filing on an amended return) and wait 90 days for the 90-day clock to expire.

The reach of IRC 6501(c)(8) is not limited to the foreign transfer itself. The IRS's authority to examine and assess extends to every item on the return for that year: domestic income, depreciation, credits, and any other issue. A taxpayer with a Form 926 failure from five years ago does not have a protected prior-year return -- that entire year remains open for full examination.

The 90-day clock starts running when Form 926 is filed, whether as part of the original return, an amended return, or a delinquent filing. A delinquent Form 926 attached to a Form 1040-X or Form 1120-X starts the clock even if the IRC 6038B penalty has already been assessed or is in dispute. Filing the delinquent Form 926 is therefore an independent priority from penalty resolution: the statute must be closed regardless of whether the penalty is abated.

For clients with unreported IRC 6677 foreign trust reporting penalties who also have outbound transfer failures, the open-statute risk under IRC 6501(c)(8) compounds across multiple information return types, and coordinated remediation of all open years should be planned before any voluntary filing.

Reasonable Cause Defense

IRC 6038B(c)(3) provides a complete defense to the penalty if the failure to file was due to reasonable cause and not willful neglect. The reasonable cause standard for Form 926 follows the general framework applicable to tax penalties under Treas. Reg. 1.6664-4: the taxpayer must demonstrate that it exercised ordinary business care and prudence but nevertheless failed to satisfy the filing requirement.

Common reasonable cause arguments for Form 926 failures include:

  • Reliance on competent tax counsel: A written opinion from qualified international tax counsel that Form 926 was not required, relied upon in good faith, substantially supports a reasonable cause claim -- but only if the opinion was based on accurate facts disclosed by the taxpayer to counsel.
  • Complexity of the transaction: Multi-step reorganizations involving multiple foreign corporations and multiple IRC sections are inherently complex. The complexity of determining filing obligations in a first-generation cross-border structure can support reasonable cause.
  • Good faith effort to comply: A taxpayer who filed related returns (Form 5471, GRA statements) and disclosed the transfer in other filings demonstrates a pattern of compliance that is relevant to reasonable cause even if Form 926 itself was omitted.
  • Ignorance of the law (limited weight): Courts have consistently held that ignorance of IRC 6038B does not alone constitute reasonable cause. Taxpayers engaging in international transactions are presumed to know of relevant reporting requirements, and a failure to inquire does not establish reasonable cause.

A well-documented contemporaneous memorandum addressing the decision made at the time of transfer -- why Form 926 was believed not to be required, or what steps were taken to determine the filing obligation -- is the strongest single piece of evidence in a reasonable cause submission. After-the-fact reconstructions are reviewed skeptically by the IRS and carry less weight than contemporaneous records.

Form 926 Filing Mechanics

Form 926 is filed as an attachment to the transferor's income tax return for the taxable year in which the transfer occurred. There is no separate standalone filing.

Practitioner Planning Note: Filing Deadline Form 926 is due with the transferor's tax return. A valid extension of the income tax return (Form 4868 for individuals, Form 7004 for corporations) extends the Form 926 deadline by the same period. The extension only helps if both the return and Form 926 are filed by the extended due date. If the return is filed late (after the extended due date), Form 926 is also late and the IRC 6038B penalty accrues from the original due date. Extensions do not create a separate grace period beyond the extended return due date. File the extension, then file both the return and Form 926 before the extended deadline.

Form 926 has four principal parts:

  • Part I: Transferee foreign corporation information (name, country of incorporation, EIN or reference ID, principal business activity).
  • Part II: Transfers of tangible property, including description, FMV, adjusted basis, and gain recognized.
  • Part III: Transfers of intangible property, including description of the intangible, FMV, adjusted basis, and applicable IRC 367(d) information.
  • Part IV: Transfers of cash (aggregate amount transferred during the relevant 12-month period).

Incomplete or inaccurate disclosure is treated as a failure to file under Treas. Reg. 1.6038B-1(f). Reporting a property at an incorrect FMV, omitting a property category, or failing to check the GRA election box when a GRA was filed each independently constitute a reportable failure that can trigger the penalty.

For delinquent filers, the Form 926 is attached to an amended return (Form 1040-X for individuals, Form 1120-X for corporations). A penalty abatement request asserting reasonable cause should be submitted concurrently. Note that the IRS's Streamlined Filing Compliance Procedures are not applicable to Form 926 failures -- those procedures cover undisclosed foreign accounts and income under FBAR and FATCA, not outbound property transfers.

Frequently Asked Questions

Q Who must file Form 926 under IRC 6038B?
A U.S. person (individual, corporation, trust, or estate) must file Form 926 if it transfers property to a foreign corporation in a transaction described in IRC 351 or IRC 361 (in a reorganization under IRC 368), and either (a) the transferor holds 10% or more of the total voting power or total value of the foreign corporation immediately after the transfer, or (b) the aggregate fair market value of the property transferred exceeds $100,000 during the 12-month period ending on the date of transfer. Both tests are independent: satisfying either one triggers the filing obligation.
Q What is the 10% ownership test for Form 926?
Under IRC 6038B and Treas. Reg. 1.6038B-1(b)(3), the 10% test is measured immediately after the transfer, not before. The transferor is compared to total voting power and total value of all outstanding stock of the foreign corporation. Constructive ownership rules under IRC 318 and IRC 958 apply. A transferor who owns stock through a partnership, trust, or related entity may meet the 10% threshold even if direct ownership is below the threshold.
Q What property triggers the $100,000 threshold?
The $100,000 threshold aggregates all transfers of cash and property to the same foreign corporation by the same transferor during the 12-month period ending on the transfer date. Once the $100,000 threshold is crossed, Form 926 must report ALL transfers during that 12-month window, not just the excess. Cash transfers alone count toward the threshold. The fair market value of property is determined as of the date of transfer.
Q What is the IRC 6038B penalty for failure to file Form 926?
The penalty under IRC 6038B(c) is 10% of the fair market value of the property transferred. For non-willful failures, the penalty is capped at $100,000 per transfer. The cap does not apply to willful failures: if the IRS determines the failure was willful, the full 10% of FMV is assessed with no ceiling.
Q How does the $100,000 non-willful cap work in practice?
The $100,000 cap under IRC 6038B(c)(2) applies per transfer, not per return or per year. Each transfer event is assessed independently and can carry its own $100,000 capped penalty. A transfer of property with an FMV of $800,000 yields a theoretical penalty of $80,000, which is below the cap. A transfer of property with an FMV of $1.5 million yields a theoretical penalty of $150,000, capped at $100,000 for a non-willful failure.
Q How does Form 926 coordinate with a gain recognition agreement?
Form 926 and a GRA under Treas. Reg. 1.367(a)-8 are separate filing obligations arising from the same transfer. The GRA is an election to avoid immediate gain recognition under IRC 367(a); Form 926 discloses the transfer itself. File Form 926 as part of the return, then attach the GRA election as a separate statement. An active GRA may modify future gain recognition if triggered, but does not eliminate the Form 926 obligation at the time of transfer.
Q What is the IRC 6501(c)(8) statute of limitations risk?
IRC 6501(c)(8) holds the statute of limitations on the entire tax return open until 90 days after Form 926 is filed. A failure to file Form 926 leaves every item on that year's tax return open for IRS examination indefinitely. The only cure is to file Form 926 and wait 90 days. Delinquent filings on amended returns start the 90-day clock.
Q What is the reasonable cause defense for IRC 6038B penalties?
IRC 6038B(c)(3) provides that no penalty is imposed if the failure to file is due to reasonable cause and not willful neglect. Key factors include reliance on competent international tax counsel, good faith compliance efforts, complexity of the transaction, and disclosure of the transfer in related returns. Ignorance of IRC 6038B alone does not establish reasonable cause. A contemporaneous memorandum documenting the compliance analysis at the time of transfer is the strongest evidence.
Q What are the special rules for intangible property transfers?
Intangible property transferred to a foreign corporation triggers both Form 926 reporting under IRC 6038B and the IRC 367(d) deemed royalty regime. The transferor is treated as receiving annual deemed royalties equal to a reasonable amount over the intangible's useful life or 20 years. Form 926, Part III, requires disclosure of the intangible. Practitioners must coordinate the deemed royalty schedule with the Form 926 FMV disclosure and with contemporaneous IRC 482 transfer pricing documentation.
Q When is Form 926 due and does an extension help?
Form 926 is due with the transferor's income tax return, including extensions. A valid extension extends the Form 926 deadline. However, if the return is filed late (after the extended due date), Form 926 is also late and the IRC 6038B penalty accrues from the original due date. The extension does not create a standalone grace period beyond the extended return date.
Q Are Section 368 reorganization transfers subject to IRC 6038B?
Yes. Transfers of property to a foreign corporation as part of a reorganization under IRC 368 are subject to Form 926 reporting. This applies to A, C, D, and other reorganization types where property passes to a foreign acquirer or is transferred in an IRC 361 exchange. The same 10% ownership and $100,000 aggregate thresholds apply. IRC 367(a) and 367(b) analysis runs concurrently and must be resolved before determining the Form 926 reporting position.
Q What information must be disclosed on Form 926?
Form 926 requires disclosure of: (1) the transferee foreign corporation's identity (name, EIN or reference ID, country of incorporation); (2) each item of property transferred, its FMV, and adjusted basis; (3) the type of exchange (IRC 351 or 361); (4) whether a GRA was filed; (5) IRC 367(d) information for intangibles; and (6) aggregate cash transfer amounts. Incomplete or inaccurate disclosure is treated as a failure to file for penalty purposes.
Q How do IRC 482 transfer pricing rules interact with Form 926 for intangibles?
When a U.S. person transfers an intangible to a foreign corporation, IRC 482 may apply concurrently with IRC 367(d). The IRS can re-price the transfer under IRC 482 to reflect an arm's length standard, independently of the deemed royalty stream. Form 926 disclosure of the intangible's FMV is the starting point for both analyses. Practitioners should have contemporaneous IRC 482 documentation in place before the transfer to support the FMV reported on Form 926.
Q Can a delinquent Form 926 be filed after the fact?
Yes. A delinquent Form 926 can be attached to an amended return (Form 1040-X for individuals, Form 1120-X for corporations). Filing starts the 90-day clock under IRC 6501(c)(8). The IRC 6038B penalty accrues from the original due date and is not automatically abated. A reasonable cause statement should accompany the delinquent filing. The IRS Streamlined Procedures do not apply to Form 926 failures.
Q What is the criminal exposure risk for willful Form 926 failures?
A willful failure removes the $100,000 cap and subjects the transferor to the full 10% of FMV penalty. Beyond civil penalties, willful violations can trigger IRC 7201 criminal liability (tax evasion, up to 5 years) or IRC 7203 (willful failure to file, up to 1 year). The DOJ Tax Division has pursued criminal referrals in offshore structure cases where Form 926 omissions were part of a broader tax avoidance scheme. If a client has prior unreported outbound transfers, early engagement of counsel to assess voluntary disclosure options is critical.
Q How does Form 926 interact with Form 5471 annual reporting?
Form 926 is a transactional report for the year of transfer. After the transfer, ongoing annual reporting on Form 5471 is required if the U.S. person holds a qualifying interest in the foreign corporation. The two forms are independent: Form 926 covers the transfer event; Form 5471 tracks ongoing ownership and income. Form 926 failures are frequently identified during Form 5471 examinations by the IRS International Campaigns unit.

Work with Americas Tax on Outbound Transfer Compliance

IRC 6038B compliance sits inside a web of interconnected obligations -- IRC 367 outbound transfers and gain recognition agreements, Form 5471 annual reporting, IRC 482 transfer pricing, and the indefinite statute risk under IRC 6501(c)(8). A single missed filing can leave an entire tax year open for examination indefinitely.

Americas Tax advises clients and their counsel on Form 926 filing positions, delinquent filing remediation, reasonable cause submissions, GRA elections, and coordination of IRC 367(d) deemed royalty schedules. If your client has a pending outbound transfer or an unreported prior transfer, contact us to discuss the compliance path before the IRS identifies the gap.

Contact Americas Tax: AmericasTax.com | (888) 700-2512 | Schedule a consultation with a practitioner who specializes in outbound transfer compliance and IRS international penalty resolution.