Funding your own UK limited company is a transfer of property to a foreign corporation. When Form 926 is required, how the 10% and $100,000 cash tests work, and what the penalty really costs.
A US citizen or resident who transfers property to a foreign corporation in exchange for stock generally has to report the transfer on Form 926, filed with that year's income tax return. Where the property is cash, reporting is required if, immediately after the transfer, you hold directly or indirectly at least 10% of the foreign corporation's total voting power or total value, or if the cash you transferred to it during the 12-month period ending on the transfer date is more than $100,000. Subscribing for the shares of your own new UK limited company satisfies the first of those tests on day one, which is why this is among the most commonly missed forms for American founders in Britain.
Section 6038B is a reporting provision, not a taxing one: a US person who transfers property to a foreign corporation must tell the IRS it happened. Form 926 is how that is done, and the IRS instructions to the form, whose current revision is dated November 2018, are the controlling source for who files, when, and with what consequences. Section 367 decides whether tax falls due on an outbound transfer; section 6038B puts the transfer on the record.
The IRS states that "a U.S. citizen or resident, a domestic corporation, or a domestic estate or trust" must file Form 926 to report certain transfers of property to a foreign corporation. For an individual the trigger is US citizenship or US residence, not where you live: an American who has lived in London for twenty years and has no US-source income is squarely inside the rule.
Cash has its own rule, and it is the one that catches founders. The instructions require a US person who transfers cash to a foreign corporation to report it if either:
Read those as alternatives, not one combined test. Many founders assume $100,000 is "the threshold" and that a modest subscription is therefore invisible. If you own a majority of your UK company — or even a tenth of it — the ownership limb is met however small the cash was. The $100,000 limb catches substantial funding by people whose stake is below 10%.
A UK private company limited by shares is a foreign corporation for US purposes by default, absent a classification election. Once it is funded, the next question is usually how to take money out, which our guide to paying yourself from a UK company as a US citizen covers.
Where the transferor is a partnership, domestic or foreign, the instructions are explicit: "the domestic partners of the partnership, not the partnership itself, are required to comply with section 6038B." So where a US LLC taxed as a partnership capitalises a UK subsidiary, each US partner reports a proportionate share. This is a frequent miss, because the entity's accountant assumes the entity files and the partners' preparers never see the transaction. The classification groundwork sits in our note on US LLCs and UK residents.
More than most people expect. The IRS describes the form as covering "exchanges or transfers of tangible or intangible property":
The common thread is that something of value moved from you into the company and you received stock, or extra value in stock you already held, in return. A genuine arm's-length sale for cash, or a genuine loan, is a different transaction — but both are often documented after the event, and the paperwork rarely says what the founder believes it says.
1. Incorporating and subscribing for shares. If you hold 10% or more immediately afterwards, which a sole founder always does, the ownership limb is met and the amount is beside the point.
2. Capitalising an existing company. Cash goes in, shares are issued or credited as paid up. Same analysis.
3. Contributing IP or equipment. You built the product personally, or as a US sole trader, and it now belongs to the UK company. The highest-risk category, and the one to take advice on before it happens.
4. A later cash injection. A year-three top-up is as reportable as the year-one subscription. There is no "already reported once" relief.
A US citizen in London incorporates a UK company in 2026 and owns all of it.
| Step | Amount transferred | Ownership after | Form 926? | Why |
|---|---|---|---|---|
| Subscribes for 1,000 ordinary shares | $1,300 cash | 100% | Yes | At least 10% held immediately after the transfer |
| Wires working capital for new shares three months later | $60,000 cash | 100% | Yes | Ownership limb again; the $100,000 figure never arises |
| Contributes a laptop and camera kit for shares | $4,000 fair market value | 100% | Yes | Tangible property transferred for stock |
| Lends the company money on written arm's-length terms, no shares issued | $40,000 | 100% | No | A genuine loan is not a section 6038B transfer, but the terms must exist and be respected |
Now the penalty arithmetic. Suppose the founder also transferred software worth $400,000 and filed nothing. The penalty is 10% of fair market value at the time of transfer: $40,000, below the $100,000 limit. Had the software been worth $2 million, 10% would be $200,000 and the limit would cap the penalty at $100,000 — unless the failure was due to intentional disregard.
Form 926 is filed with the US transferor's income tax return for the tax year that includes the date of the transfer. It is an attachment to the return, not a separate submission with its own address.
For Americans abroad the dates follow the return. The IRS confirms that for a calendar-year filer "the regular due date of your return is April 15, and the automatic extended due date would be June 15" where you live outside the United States and your main place of business is abroad, claimed by attaching a statement to the return. Interest still runs on unpaid tax from the regular due date. Because the form travels with the return, an extension is a legitimate way to buy time to value a transfer properly rather than guess at it.
| What you transferred | Form 926 likely? | What else is likely in play |
|---|---|---|
| Cash subscription on incorporation, you own 10% or more | Yes | Form 5471 as a shareholder; FBAR once company accounts are yours to report |
| Cash under $100,000, you own under 10%, no related transferors | Generally no | Form 5471 only if a category applies; document the position |
| Cash over $100,000 in 12 months, any ownership level | Yes | Form 5471 if a category applies; source-of-funds documentation |
| Equipment, vehicles or stock for shares | Yes | Valuation support; Form 5471; UK capital allowances |
| Software, IP, trade marks, know-how | Yes, and the hardest case | Section 367(d); independent valuation; possible income inclusions |
| A genuine arm's-length loan, documented, no shares issued | No | Interest withholding and treaty position; UK deductibility |
| A transfer by a US partnership or multi-member LLC | Yes — by the US partners, not the entity | Each partner's own Form 926 |
The statutory exceptions are narrow and concern reorganisations rather than ordinary funding: certain exchanges described in sections 354 or 356, certain section 355 distributions by a domestic corporation, and certain transfers of stock or securities under section 367(a) where specified conditions are met. None helps the founder who simply funded their own company.
The penalty for failing to comply with section 6038B is 10% of the fair market value of the property at the time of the transfer. Two qualifications matter.
The limit. The penalty "is limited to $100,000 unless the failure to comply was due to intentional disregard." That cap matters on a large IP transfer and is irrelevant on a small subscription.
Reasonable cause. The penalty "will not apply if the failure to comply is due to reasonable cause and not to willful neglect." That is a real exception, won on specifics: a written, verifiable account of why the form was not filed. The instructions separately warn that a 40% penalty may be imposed on any underpayment resulting from an undisclosed foreign financial asset understatement.
The consequence that outlasts the penalty is the limitations period. The instructions state that the period of limitations for assessment of tax upon the transfer of that property "is extended to the date that is 3 years after the date on which the information required to be reported is provided." So a 2019 transfer that was never reported is not time-barred in 2026 as far as that transfer is concerned. Filing the form starts the clock, which is the strongest argument for correcting an omission rather than waiting for it to age out — on its own, it never does.
Two regimes, two different facts, and conflating them is the commonest error.
So in the year you incorporate you may owe both; in later years, only Form 5471, unless you put more property in. The penalties differ too. The IRS states that failure to file a complete and correct Form 5471 by the due date may attract a $10,000 penalty for each failure, with a continuation penalty of a further $10,000 for each 30-day period after a 90-day notice period expires, to a maximum of $50,000. Form 926's penalty is value-based: one is a flat fee, the other scales with what you moved.
Behind both sits a separate question: whether the company's profits are taxed to you currently under the controlled foreign company rules, covered in our note on Subpart F and GILTI for small foreign company owners.
A cash transfer is a reporting problem. A transfer of appreciated property, and above all of intangibles, can be a tax problem, fixed at the moment of transfer.
Section 367(a) displaces the ordinary rule that a contribution of property to a corporation in exchange for stock is tax-free, so gain can be recognised on an outbound transfer in defined circumstances. Section 367(d) deals with intangibles on a different basis, which the instructions describe as producing an annual income inclusion rather than a single gain event. The practical effect is that moving self-developed software into your UK company can create US taxable income with no cash changing hands, in an amount driven by a valuation you have not yet obtained.
Sequence here is unforgiving: the analysis must be done before the transfer, because afterwards there is nothing left to plan, only a number to report and defend. In our firm a licensed CPA or Enrolled Agent reviews and signs off every US position, with an ACCA-qualified accountant on the UK side, and that modelling happens before documents are signed.
1. Establish what was transferred, and when. Pull bank records, share allotment returns, board minutes and any asset list. You need dates, amounts and a defensible value for anything that was not cash.
2. Check whether the underlying returns were right. If all income was reported and only the form is missing, that is a narrower problem.
3. If only information returns are missing, the IRS's delinquent international information return submission procedures address taxpayers not under examination or investigation who have not been contacted about the returns: file through normal procedures, attaching a reasonable cause statement to each return for which reasonable cause is asserted. Note the IRS caveat — during processing, "penalties may be assessed without considering the attached reasonable cause statement" — so expect to respond to correspondence. Only for Forms 3520 and 3520-A are such statements considered before a penalty is assessed.
4. If income or accounts were also unreported, the Streamlined procedures are usually the better route. For eligible non-residents the IRS requires delinquent or amended returns for the most recent 3 years for which the due date has passed, delinquent FBARs for the most recent 6 years, and "all required information returns" filed with those returns, plus a signed Form 14653 certifying non-willful conduct. Those who properly complete it "will not be subject to failure-to-file and failure-to-pay penalties, accuracy-related penalties, information return penalties, or FBAR penalties", which is why a missed Form 926 alongside unreported income is often best cleaned up inside Streamlined. Our Streamlined Foreign Offshore guide sets out the eligibility conditions.
5. Decide the order deliberately. A delinquent Form 926 filed alone, on facts that would have qualified for Streamlined, can compromise the better route.
This is general information about how section 6038B reporting works, not advice on your own facts. A cash subscription for shares in your own UK company is usually tidy and inexpensive to report correctly, and expensive to leave unreported, because the limitations period on that transfer stays open until you file. A transfer of software, intellectual property or appreciated assets is a different order of problem, and should be valued before it happens rather than after. If either fits your position, our accountants for US and UK work both sides of the structure together, and you can book a consultation to have a transfer reviewed ahead of the next deadline rather than behind it.