Putting money into your own company can be a reportable transfer

A reporting return for transfers of property to a foreign corporation. Form 926 reports transfers described in the relevant Code sections, and its purpose is disclosure rather than computing a liability.

So it is an information return. It tells the IRS something happened, and it is filed with your return.

US citizens and residents file it, and so do domestic corporations, estates and trusts. The instructions set out that list, and the first entry catches a great many people living abroad.

So American citizenship is enough. Living in London and running a British company does not take you outside the rule.

Partnerships work differently. Where a partnership transfers, the domestic partners file rather than the partnership, each treated as transferring a proportionate share.

So check citizenship before anything else. Form 926 follows the person rather than the place they happen to live.

Because nobody thinks of money as property being transferred. You are funding your own company, not disposing of anything, and no gain arises anywhere.

The rule does not care. A US person transferring cash to a foreign corporation reports it where either of two tests is met.

Those two tests sit at a lower level than most founders assume. Ordinary working capital clears them easily.

So treat every injection as a potential filing. Form 926 does not wait for a gain to appear.

The first looks at ownership immediately after. You report where a tenth or more of the company then belongs to you, measured either by voting power or by value, and counting indirect holdings.

The second looks at the amount. You report where cash transferred to that corporation during the twelve-month period ending on the date of the transfer comes to more than $100,000.

Note the word or. Either test on its own brings the transfer inside the rule, so a sole shareholder funding a company meets the first whatever the sum.

Record the date of each payment. Both tests turn on when, not only on how much.

No, and that is the detail that trips people. The period runs for twelve months ending on the date of the transfer, which is a rolling measure rather than a calendar or tax year.

So several modest injections can aggregate. Three payments of forty thousand dollars across eleven months reach the threshold, even though no single one comes close.

So keep a running total rather than an annual one. The window moves with every payment you make.

Whatever the property was worth on the day it moved, which is the same measure the penalty uses. For cash that is simply the amount, and for anything else somebody has to establish it.

So keep the valuation working papers with the filing. The form asks you to state a figure, and the exposure scales directly with it.

A percentage, not a fixed sum, which is what makes it serious. Failing to comply costs a tenth of whatever the property was worth on the day it moved.

A cap applies, and an exception sits alongside it. The penalty is limited to $100,000 unless the failure was due to intentional disregard, and it does not apply where the failure was due to reasonable cause and not willful neglect.

So the exposure scales with what you moved. A large capitalization produces a large number very quickly.

So the arithmetic rewards filing late over not filing at all. A late Form 926 still starts the clock running.

An unfiled form keeps the year alive. Where the required information is not provided, the period of limitations for assessing tax on that transfer extends to three years after the information is eventually supplied.

Read that carefully. The clock does not start until you file, so a transfer from years ago can still sit inside an open window.

In our practice that consequence worries clients far more than the penalty does, and reasonably so.

A separate provision addresses the tax rather than the reporting. A 40% penalty may apply to an underpayment resulting from an undisclosed foreign financial asset understatement.

It has its own defense. No penalty applies to a portion of an underpayment where the taxpayer shows reasonable cause and acted in good faith on that portion.

The escape route closed. Legislation repealed the active trade or business exception, so transfers occurring after 2017 no longer rely on it.

The consequence is substantial. Transfers of tangible property, other than certain stock transfers, fall under the general rule and attract full gain recognition.

So moving business assets into a UK company is a taxable event rather than a neutral reorganization. Moving cash is not taxable, but it is still reportable.

So value the assets before moving them. The tax consequence arrives whether or not anybody expected it.

Several of them, and they are specific rather than general in nature. A US person need not file for certain exchanges, including where they exchange stock of a foreign corporation in a recapitalization.

Another covers asset reorganizations. Exchanging stock of a domestic or foreign corporation for stock of a foreign corporation under a qualifying asset reorganization can fall outside, where it is not treated as an indirect stock transfer.

A further exception turns on size. A transferor of stock or securities can be outside the requirement where they owned less than 5% of both the total voting power and the total value of the transferee.

Check each one against your own facts. They are drafted narrowly, and none of them is a general let-out.

Yes, on a single condition that is either easy to satisfy or easy to miss entirely. Spouses may file Form 926 jointly, but only where they file a joint income tax return.

So the filing status drives it. Couples filing separately, which is common where one spouse is not American, each handle their own transfers.

It reports an event, while the others report a year. Form 926 covers the transfer itself, and the annual position goes elsewhere.

A US owner of a foreign corporation usually meets Form 5471 for the ongoing reporting, which our guide to Form 5471 and a UK company covers.

So the two run alongside each other. Filing one does not discharge the other.

It can change what America sees, and therefore whether a transfer to a foreign corporation has happened at all. Classification decides whether there is a corporation on the receiving end.

Our guide to the entity classification election covers how a UK company is classified and when you can change it. Settle that question before working through the reporting.

Then this may well not be the right form at all, because it reports transfers made to a foreign corporation specifically. Classification decides which reporting regime you are in, and it has to be settled first.

A foreign partnership carries its own reporting instead, and our guide to Form 8865 covers that. Settle the classification first and the form follows from it.

The detail sits in the regulations rather than the form. Regulation 1.6038B-1 contains the reporting rules, including the cash provision the instructions point to.

So go there when the instructions seem ambiguous. The form summarizes, and the regulation governs.

Take an illustrative case. An American living in London incorporates a UK company, owns all the shares, and pays in 60,000 dollars in March and a further 70,000 in October.

Neither payment alone exceeds the cash threshold. Looking back twelve months from October, though, the total reaches 130,000 dollars.

The ownership test was met from the first day in any event, since she holds the whole company. Two reportable transfers, and the year stays open until the form arrives.

Notice that no tax arose on either payment. The filing duty was never about tax in the first place.

The commonest is treating cash as outside the rule. It is property for this purpose, and the instructions address it directly.

The second is counting against the tax year rather than the rolling twelve months ending on the transfer date.

After those comes the belief that no tax means no filing. The reporting duty attaches to the transfer, and the penalty attaches to the failure.

A fourth is assuming a small company is too small to matter. Form 926 sets no minimum at all for the ownership test.

First we map every movement into the company across the year, because the rolling window means the dates matter as much as the amounts. Then we test each one against both cash rules.

Where a filing was missed, we look at reasonable cause before anything else. Start with our US federal returns service, or reach us through our contact page.