US Tax Return Preparation for Expats: The Missed Form 926

If you are a US citizen who capitalised a UK limited company with cash, intellectual property or shares and never filed Form 926, the unfiled return is the transfer itself, not the trading. Section 6038B imposes a penalty of 10% of the value transferred, and the assessment window does not close until the form is filed. Correct US tax return preparation for expats starts by finding that transfer.

Why the transfer, not the trading, is the unfiled return

Almost every American founder we meet who owns a UK company has been thinking about the wrong year. They ask about profits, dividends, the GILTI regime, whether the company's retained earnings are taxable to them personally. Those are real questions. But the omission that carries the largest single penalty is usually much older and much quieter: the day the company was capitalised.

When a US person moves property into a foreign corporation in a transaction described in section 351 and the related non-recognition provisions, section 6038B requires a report. That report is Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation, and it attaches to the individual income tax return for the year of the transfer. The IRS page for Form 926 is explicit that a US citizen or resident must complete and file it to report transfers described in section 6038B(a)(1)(A), 367(d) or 367(e).

Nothing about the moment feels like a taxable event. You incorporated a company at Companies House, subscribed for shares, wired money from a personal account to a business account you also control, and possibly assigned some code or a trademark you had written yourself. No cash left your economic orbit. No gain was realised in any commercial sense. And crucially, nothing on the UK side asked you a single question about it.

That is exactly the profile of the failure. It is not evasion. It is a reporting obligation attached to an event that does not present itself as an event.

Who has to file Form 926 after capitalising a UK limited company?

The rule has a general limb and a cash-specific limb, and founders trip over the cash limb far more often because they assume a threshold protects them.

The cash rule, and the threshold that usually does not save you

A US person transferring cash to a foreign corporation must report the transfer if, immediately after it, that person holds directly, indirectly or by attribution at least 10% of the total voting power or total value of the company, or if cash transferred by that person or any related person during the twelve-month period ending on the transfer date exceeds $100,000. The IRS guidance on the Form 926 filing requirement sets out both limbs.

Note the word "or". Founders read the $100,000 figure, conclude their £40,000 seed injection was too small, and stop reading. But a sole or majority owner of a UK Ltd satisfies the 10% test on day one, in every year in which cash goes in. The dollar threshold exists for minority transferors. It is not a de minimis for owners.

Then there is the pattern nobody expects: the director's loan. Founders routinely fund a UK company informally, book the injections to a director's loan account, and later capitalise the balance into shares to clean up the balance sheet before a raise. That capitalisation is a fresh transfer of property to a foreign corporation. It is its own Form 926 in its own year, on top of the incorporation-year filing.

Intellectual property, and why 2017 changed the answer

The second common contribution is intangible: source code, a design library, a patent application, a brand, a customer list, a book of relationships. Assigning it into the UK company is an outbound transfer of intangible property, and section 367(d) treats it as producing deemed payments to you, the transferor, commensurate with the income the property generates over its useful life.

Before 2018, many transfers of this type were sheltered by the active trade or business exception and by the treatment of foreign goodwill and going-concern value. That shelter was narrowed substantially by the 2017 legislation. Transfers made after that point are far more likely to fall squarely inside section 367(d), which means the missing Form 926 is sitting on top of years of unreported deemed income, not merely an information gap. The repair is then a different exercise.

Shares, and the transfer that creates real tax rather than a form

The most expensive version we see is the holding-company step. A founder with an existing US entity, a stake in another company, or a portfolio of appreciated stock contributes those shares into a new UK holding company as part of a restructure. This is an outbound transfer of stock, and section 367(a) can switch off non-recognition altogether so that gain is recognised on the contribution, unless a gain recognition agreement is properly filed on Form 8838 with a timely return.

Two failures then compound. The Form 926 was never filed, and the gain recognition agreement that would have deferred the gain was never made. Relief for a late gain recognition agreement runs on its own reasonable cause track under the section 367(a) regulations, and it is time-sensitive in a way the Form 926 penalty defence is not. If a share-for-share step sits anywhere in your UK structure, that is the first thing to reconstruct.

What is the 10% penalty actually measured against?

This is the question that causes the most fear and the most avoidable panic. The penalty under section 6038B is 10% of the fair market value of the property at the time of the exchange, capped at $100,000 unless the failure was due to intentional disregard, in which case the cap disappears.

It is measured against what you put in, at the value it had on the day you put it in, translated to US dollars at that date's rate. It is not measured against:

• the current value of your shareholding, however successful the company has become;
• the company's revenue, profits or retained earnings;
• the valuation agreed at your last funding round;
• the aggregate of everything the company now owns.

A founder who capitalised a UK company with £120,000 of cash and code in 2019, and whose company is now worth £25m, is looking at a measure based on roughly £120,000, not £25m. That distinction alone changes the emotional temperature of most first conversations we have.

Three refinements matter, though. First, the penalty applies per transfer, so multiple tranches across multiple years produce multiple exposures rather than one. Second, valuing contributed intangibles is genuinely contentious, and a defensible contemporaneous valuation is worth commissioning rather than estimating. Third, where a transfer produced an understatement of tax connected to an undisclosed foreign financial asset, a separate accuracy-related penalty of 40% can be in play under the enhanced foreign-asset rules. That is why we insist on modelling the income consequences of the transfer before deciding on a disclosure route.

Reasonable cause remains a statutory defence. The penalty does not apply where the failure is due to reasonable cause and not willful neglect. Reasonable cause is not, however, self-executing. It has to be asserted, in writing, in a submission you make before the IRS finds you.

Why does the UK side never warn you?

The structural reason this omission survives for a decade is that the UK reporting system is silent on the exact transaction the US reporting system cares most about. There is no HMRC analogue to Form 926. Subscribing for newly issued shares in your own company generates no return, no election and no disclosure.

Event	US / IRS treatment	UK / HMRC treatment
Subscribing cash for shares at incorporation	Reportable transfer of property to a foreign corporation; Form 926 attaches to Form 1040 for that year	No return. Newly issued shares are not chargeable to stamp duty
Later cash injections / capitalising a director's loan	A fresh reportable transfer in each year it occurs	Company law paperwork only; no HMRC filing arises from the subscription itself
Assigning IP you created into the company	Section 367(d) deemed payments to the transferor; Form 926 required	Connected-party transfer at market value for CGT; company falls into the intangible fixed assets regime, with relief restrictions for related-party acquisitions
Contributing existing shares into a UK holdco	Section 367(a) can force gain recognition unless a gain recognition agreement is filed on Form 8838	Share-for-share exchange rules may apply; stamp duty at 0.5% on transfers of existing shares, subject to available reliefs
Founder shares issued for services or on incorporation	Ordinary income analysis; possible section 83(b) election within 30 days	Employment-related securities analysis; possible section 431 election within 14 days; annual ERS return by 6 July
Company trading profitably thereafter	Controlled foreign corporation regime; annual current inclusions for a 10% US shareholder	Corporation tax on company profits; no personal charge until distribution

The UK column contains real obligations, and they are worth getting right in their own terms. HMRC's Corporate Intangibles Research and Development Manual governs how the company treats IP it acquires, and the gov.uk guidance on tax when you buy shares covers the 0.5% charge on transfers of existing shares. But note what is absent: not one of these puts a question in front of the founder that reads "did you transfer property to a company outside the United States?" So nobody answers it.

This is the interaction that generalist expat pages handle badly, and it is where cross-border work earns its fee. A UK accountant with an immaculate CT600 has done nothing wrong and has still left a US filing gap open for years.

The forms that go missing alongside Form 926

Form 926 is almost never orphaned. When we reconstruct a founder's file, the same cluster appears:

• Form 5471, Category 3. A US person who acquires stock meeting the 10% threshold is a Category 3 filer for that year, with an organisation-and-acquisition disclosure that mirrors the Form 926 facts. Later years fall into Category 4 or 5. The IRS Form 5471 page sets out the categories, and the base penalty is $10,000 per form per year.
• Form 8938. The shareholding is a specified foreign financial asset once the reporting thresholds for a taxpayer living abroad are met.
• FBAR. The company's UK bank accounts are reportable where you hold signature or other authority over them, quite apart from your personal accounts.
• Form 8838. Where a gain recognition agreement should have supported a share contribution.
• Annual CFC inclusions. Once the company was formed, a 10% US shareholder generally has current income inclusions on the company's tested income, regardless of whether a dividend was ever paid. The 2025 US legislation renamed and recalibrated this regime, including the deduction percentage that applies to those inclusions, for tax years beginning after 2025.

The practical point is that the Form 926 conversation almost always uncovers a multi-year catch-up rather than a single amended return. Approaching it as a one-form fix produces a submission that invites a follow-up letter.

How the statute of limitations behaves when the form was never filed

Under section 6501(c)(8), where a required international information return is not furnished, the period for assessing tax on the return does not expire until three years after the information is supplied. The IRS confirms this extension in its Form 926 guidance.

Read that carefully, because it cuts both ways. A 2016 transfer that was never reported can still leave the 2016 return open in 2026. But the same provision means the clock only starts when you file. Where the failure was non-willful and due to reasonable cause, the extension is generally confined to the items related to the omission rather than reopening the entire return. Waiting does not shorten anything. Filing does.

How the omission is repaired inside a multi-year catch-up

There are three routes, and the choice between them turns on one question: was income under-reported, or only forms omitted?

Route one: the Streamlined Foreign Offshore Procedures

Where income was also under-reported, most commonly the section 367(d) deemed payments, unreported CFC inclusions, or dividends and salary from the UK company, the streamlined route is usually the correct home for the repair. It requires certification that the conduct was non-willful, a fixed lookback for returns and FBARs, and a non-residency test that most genuine expatriate founders meet comfortably. The IRS streamlined filing compliance procedures set out the eligibility conditions, including that no civil examination is open.

Delinquent Forms 926, 5471 and 8938 for the covered years go in with the package. Where a submission is accepted, information return penalties are not asserted for those years. That is the single strongest reason to place a Form 926 failure inside a streamlined submission rather than filing it on its own. Our streamlined filing team builds these submissions as one document set rather than a pile of forms.

The wrinkle for founders: the streamlined lookback for returns is shorter than the age of most incorporations. A 2015 transfer is outside it. That transfer year is then handled by a separate amended return with its own reasonable cause statement, filed alongside the streamlined package and cross-referenced to it, so the IRS sees one coherent story rather than two unrelated submissions.

Route two: delinquent international information return procedures

Where all income was correctly reported and only the forms were missed, which is more common than founders expect when a UK accountant handled the company properly and a US preparer filed the 1040 without ever being told the company existed, the delinquent information return route fits better. Under the IRS delinquent international information return submission procedures, the returns are filed under normal procedures, attached to an amended income tax return, by a taxpayer not under civil examination or criminal investigation and not already contacted about them.

There is no automatic penalty waiver here. Penalties can be assessed and then abated on reasonable cause. So the quality of the written statement is the whole submission.

Route three: a standalone amended year with reasonable cause

For a single, clean, isolated transfer, an amended return for the transfer year with Form 926 attached and a reasonable cause narrative can be proportionate. This is the narrowest route and the one most often chosen wrongly, because founders who like its simplicity have usually not yet found the second and third transfers.

Choosing between them

We work through four questions in sequence. Did the transfer itself generate income under section 367, so that the tax position and not just the form is wrong? Are there other unreported items in any covered year? Is any year already under examination or subject to IRS contact? And can the non-willfulness certification be made honestly, given what the founder was actually told at the time and by whom?

The last question decides everything. If the answer is uncomfortable, the conversation moves to a different set of options entirely, and it should happen under privilege before anything is filed.

What a reconstruction actually looks like

Take a composite of a file we see repeatedly. An American software founder moves to London, incorporates a UK limited company, subscribes £100 for 100 ordinary shares, and over the following eighteen months wires roughly £180,000 of personal savings into the company in six tranches, booked to a director's loan account. In year two she assigns the codebase she wrote before incorporation to the company for nominal consideration. In year four, the loan balance is capitalised into shares before a seed round. Her UK accounts and corporation tax returns are impeccable. Her US returns claim the foreign earned income exclusion on her modest salary and report nothing else.

The reconstruction produces: a Form 926 for the incorporation year; a Form 926 for the IP assignment year, with a valuation; a Form 926 for the capitalisation year; Form 5471 as a Category 3 filer in years one and four and as a Category 4 or 5 filer throughout; Form 8938 from the first year the threshold was met; FBARs for the company accounts; a section 367(d) income analysis for the assigned code; and CFC inclusions once the company turned profitable. Whether a UK tax credit relieves any of the resulting US charge is a separate and often favourable piece of the analysis.

What it does not produce is a penalty measured against the seed valuation. The measure is £180,000 plus a defensible value for the code, at transfer-date rates, and the reasonable cause position on those facts is strong.

What we ask founders to gather

• The Companies House incorporation documents, the statement of capital and every subsequent SH01 return of allotment.
• Bank statements evidencing each injection, with dates and amounts, so transfer-date FX can be applied properly rather than averaged.
• The director's loan account ledger from inception, and the board minute or resolution capitalising it.
• Any IP assignment deed, and any evidence of what the asset was worth when assigned rather than what it is worth now.
• Every share purchase or subscription agreement involving contributed shares of another company.
• The US returns as filed for each affected year, and any correspondence with the preparer showing what they were and were not told.

That last item matters more than founders realise. Reasonable cause is a narrative about what you knew and who advised you. The email in which you mentioned the UK company to a preparer who did not ask a follow-up question is evidence.

The mistakes that make the repair harder

• Filing Form 926 on its own, with no amended return around it. The form attaches to a return. Sent loose, it frequently achieves nothing except a date stamp.
• Filing the current year cleanly and hoping the past is closed. A first correct filing after years of silence is a visible discontinuity, and section 6501(c)(8) means the old years are still open.
• Estimating the value of contributed IP. The value is the penalty measure and the section 367(d) base. Guessing at it undermines both.
• Treating the UK filings as evidence of US compliance. They are evidence of good faith. They are not a substitute for a return that was never filed.
• Waiting for a letter. Every route described above requires that you have not already been contacted. Delay is the only thing that can remove your options.

Getting it right the second time

A missed Form 926 is one of the most repairable failures in the US international system, provided it is repaired deliberately. The exposure is bounded by what you contributed rather than what you built, the statutory reasonable cause defence is available, and the disclosure programmes are open to founders who genuinely did not know. What it does not survive is piecemeal handling: one form here, one amended year there, three inconsistent explanations across two tax years.

At Jungle Tax we prepare US and UK returns for founders, executives and high-net-worth individuals on both sides of the Atlantic, and we handle these reconstructions as a single project: find every transfer, value it properly, choose one route, and file one coherent submission. You can read more of our technical work in our cross-border guides.

If you capitalised a UK company and have never seen a Form 926 in your US return, the position is almost certainly fixable and it is very unlikely to be as expensive as you fear. Contact our cross-border team for a confidential consultation. We will reconstruct the transfer history, quantify the real exposure before you commit to anything, and tell you plainly which disclosure route fits your facts.