[Title 26 CFR 1.6038B-1]
[Code of Federal Regulations (annual edition) - April 1, 2002 Edition]
[Title 26 - INTERNAL REVENUE]
[Chapter I - INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY]
[Subchapter A - INCOME TAX (CONTINUED)]
[Part 1 - INCOME TAXES]
[Sec. 1.6038b-1 - Reporting of certain transfers to foreign corporations.]
[From the U.S. Government Printing Office]


26INTERNAL REVENUE122002-04-012002-04-01false1.6038B-1Sec. 1.6038B-1INTERNAL REVENUEINTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURYINCOME TAX (CONTINUED)INCOME TAXES
Sec. 1.6038B-1  Reporting of certain transfers to foreign corporations.

    (a) Purpose and scope. This section sets forth information reporting 
requirements under section 6038B concerning certain transfers of 
property to foreign corporations. Paragraph (b) of this section provides 
general rules explaining when and how to carry out the reporting 
required under section 6038B with respect to the transfers to foreign 
corporations. Paragraph (c) of this section and Sec. 1.6038B-1T(d) 
specify the information that is required to be reported with respect to 
certain transfers of property that are described in section 
6038B(a)(1)(A) and 367(d), respectively. Section 1.6038B-1(e) describes 
the filing requirements for property transfers described in section 
367(e). Paragraph (f) of this section sets forth the consequences of a 
failure to comply with the requirements of section 6038B

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and this section. For effective dates, see paragraph (g) of this 
section. For rules regarding transfers to foreign partnerships, see 
section 6038B(a)(1)(B) and any regulations thereunder.
    (b) Time and manner of reporting--(1) In general-- (i) Reporting 
procedure. Except for stock or securities qualifying under the special 
reporting rule of paragraph (b)(2) of this section, and certain 
exchanges described in section 354 (listed below), any U.S. person that 
makes a transfer described in section 6038B(a)(1)(A), 367(d) or (e), is 
required to report pursuant to section 6038B and the rules of this 
section and must attach the required information to Form 926, ``Return 
by Transferor of Property to a Foreign Corporation.'' For special rules 
regarding cash transfers made in tax years beginning after February 5, 
1999, see paragraphs (b)(3) and (g) of this section. For purposes of 
determining a U.S. transferor that is subject to section 6038B, the 
rules of Sec. 1.367(a)-1T(c) and Sec. 1.367(a)-3(d) shall apply with 
respect to a transfer described in section 367(a), and the rules of 
Sec. 1.367(a)-1T(c) shall apply with respect to a transfer described in 
section 367(d). Additionally, if in an exchange described in section 
354, a U.S. person exchanges stock of a foreign corporation in a 
reorganization described in section 368(a)(1)(E), or a U.S. person 
exchanges stock of a domestic or foreign corporation for stock of a 
foreign corporation pursuant to an asset reorganization described in 
section 368(a)(1)(C), (D), or (F), that is not treated as an indirect 
stock transfer under section 367(a), then the U.S. person exchanging 
stock is not required to report under section 6038B. Notwithstanding any 
statement to the contrary on Form 926, the form and attachments must be 
attached to, and filed by the due date (including extensions) of, the 
transferor's income tax return for the taxable year that includes the 
date of the transfer (as defined in Sec. 1.6038B-1T(b)(4)). Any 
attachment to Form 926 required under the rules of this section is filed 
subject to the transferor's declaration under penalties of perjury on 
Form 926 that the information submitted is true, correct, and complete 
to the best of the transferor's knowledge and belief.
    (ii) Reporting by corporate transferor. If the transferor is a 
corporation, Form 926 must be signed by an authorized officer of the 
corporation. If, however, the transferor is a member of an affiliated 
group under section 1504(a)(1) that files a consolidated Federal income 
tax return, but the transferor is not the common parent corporation, an 
authorized officer of the common parent corporation must sign Form 926.
    (iii) Transfers of jointly-owned property. If two or more persons 
transfer jointly-owned property to a foreign corporation in a transfer 
with respect to which a notice is required under this section, then each 
person must report with respect to the particular interest transferred, 
specifying the nature and extent of the interest. However, a husband and 
wife who jointly file a single Federal income tax return may file a 
single Form 926 with their tax return.
    (2) Exceptions and special rules for transfers of stock or 
securities under section 367(a)--(i) Transfers on or after July 20, 
1998. A U.S. person that transfers stock or securities on or after July 
20, 1998 in a transaction described in section 6038B(a)(1)(A) will be 
considered to have satisfied the reporting requirement under section 
6038B and paragraph (b)(1) of this section if either--
    (A) The U.S. transferor owned less than 5 percent of both the total 
voting power and the total value of the transferee foreign corporation 
immediately after the transfer (taking into account the attribution 
rules of section 318 as modified by section 958(b)), and either:
    (1) The U.S. transferor qualified for nonrecognition treatment with 
respect to the transfer (i.e., the transfer was not taxable under 
Secs. 1.367(a)-3(b) or (c)); or
    (2) The U.S. transferor is a tax-exempt entity and the income was 
not unrelated business income; or
    (3) The transfer was taxable to the U.S. transferor under 
Sec. 1.367(a)-3(c), and such person properly reported the income from 
the transfer on its timely-filed (including extensions) Federal income 
tax return for the taxable year that includes the date of the transfer; 
or
    (4) The transfer is considered to be to a foreign corporation solely 
by reason of Sec. 1.83-6(d)(1) and the fair market

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value of the property transferred did not exceed $100,000; or
    (B) The U.S. transferor owned 5 percent or more of the total voting 
power or the total value of the transferee foreign corporation 
immediately after the transfer (taking into account the attribution 
rules of section 318 as modified by section 958(b)) and either:
    (1) The transferor (or one or more successors) properly entered into 
a gain recognition agreement under Sec. 1.367(a)-8; or
    (2) The transferor is a tax-exempt entity and the income was not 
unrelated business income; or
    (3) The transferor properly reported the income from the transfer on 
its timely-filed (including extensions) Federal income tax return for 
the taxable year that includes the date of the transfer; or
    (4) The transfer is considered to be to a foreign corporation solely 
by reason of Sec. 1.83-6(d)(1) and the fair market value of the property 
transferred did not exceed $100,000.
    (ii) Transfers before July 20, 1998. With respect to transfers 
occurring after December 16, 1987, and prior to July 20, 1998, a U.S. 
transferor that transferred U.S. or foreign stock or securities in a 
transfer described in section 367(a) is not subject to section 6038B if 
such person is described in paragraph (b)(2)(i)(A) of this section.
    (3) Special rule for transfers of cash. A U.S. person that transfers 
cash to a foreign corporation in a transfer described in section 
6038B(a)(1)(A) must report the transfer if--
    (i) Immediately after the transfer such person holds directly, 
indirectly, or by attribution (determined under the rules of section 
318(a), as modified by section 6038(e)(2)) at least 10 percent of the 
total voting power or the total value of the foreign corporation; or
    (ii) The amount of cash transferred by such person or any related 
person (determined under section 267(b)(1) through (3) and (10) through 
(12)) to such foreign corporation during the 12-month period ending on 
the date of the transfer exceeds $100,000.
    (4) [Reserved]. For further guidance, see Sec. 1.6038B-1T(b)(4).
    (c) Information required with respect to transfers described in 
section 6038B(a)(1)(A). A United States person that transfers property 
to a foreign corporation in an exchange described in section 
6038B(a)(1)(A) (including cash transferred in taxable years beginning 
after February 5, 1999, and other unappreciated property) must provide 
the following information, in paragraphs labeled to correspond with the 
number or letter set forth in this paragraph (c) and Sec. 1.6038B-
1T(c)(1) through (5). If a particular item is not applicable to the 
subject transfer, the taxpayer must list its heading and state that it 
is not applicable. For special rules applicable to transfers of stock or 
securities, see paragraph (b)(2)(ii) of this section.
    (1) through (5) [Reserved]. For further guidance, see Sec. 1.6038B-
1T(c)(1) through (5).
    (6) Application of section 367(a)(5). If the asset is transferred in 
an exchange described in section 361(a) or (b), a statement that the 
conditions set forth in the second sentence of section 367(a)(5) and any 
regulations under that section have been satisfied, and an explanation 
of any basis or other adjustments made pursuant to section 367(a)(5) and 
any regulations thereunder.
    (d) [Reserved]. For further guidance, see Sec. 1.6038B-1T(d).
    (e) Transfers subject to section 367(e)--(1) In general. If a 
domestic corporation (distributing corporation) makes a distribution 
described in section 367(e)(1) or section 367(e)(2), the distributing 
corporation must comply with the reporting requirements of this 
paragraph (e). Unless otherwise provided in this section, a distributing 
corporation making a distribution described in sections 367(e)(1) or 
367(e)(2) must file a Form 926, ``Return by a U.S. Transferor of 
Property to a Foreign Corporation (under section 367),'' as amended and 
modified by this section.
    (2) Reporting requirements for section 367(e)(1) distributions of 
domestic controlled corporations. A domestic distributing corporation 
making a distribution of the stock or securities of a domestic 
corporation under section 355 is not required to file a Form 926, as 
described in paragraph (e)(1) of this section, and shall have no other 
reporting requirements under section 6038B.

[[Page 775]]

    (3) Reporting requirements for section 367(e)(1) distributions of 
foreign controlled corporations. If the distributing corporation makes a 
section 355 distribution of the stock or securities of a foreign 
controlled corporation to distributee shareholders who are not qualified 
U.S. persons, as defined in Sec. 1.367(e)-1(b)(1), then the distributing 
corporation shall complete Part 1 of the Form 926 and attach a signed 
copy of such form to its U.S. income tax return for the year of the 
distribution. The distributing corporation shall also attach to its U.S. 
income tax return for the year of distribution a statement signed under 
the penalties of perjury entitled, ``Addendum to Form 926.'' The 
addendum shall contain a brief description of the transaction, state the 
number of shares distributed to distributees who are not qualified U.S. 
persons (applying the rules contained in Sec. 1.367(e)-1(d)), and state 
the basis and fair market value of the distributed stock or securities 
(including a list stating the amounts that were distributed to 
distributees who were not qualified U.S. persons and distributees who 
were qualified U.S. persons).
    (4) Reporting rules for section 367(e)(2) distributions by domestic 
liquidating corporations. If the distributing corporation makes a 
distribution of property in complete liquidation under section 332 to a 
foreign distributee corporation that meets the stock ownership 
requirements of section 332(b) with respect to the stock of the 
distributing corporation, then the distributing corporation shall 
complete a Form 926 and attach a signed copy of such form to its U.S. 
income tax return for the year of the distribution. The property 
description contained in Part III of the Form 926 shall contain a 
description of all property distributed by the liquidating corporation 
(regardless of whether the property qualifies for nonrecognition). The 
description shall also identify the property excepted from gain 
recognition under Sec. 1.367(e)-2(b)(2)(ii) and (iii). If the 
distributing corporation distributes property that will be used by the 
foreign distributee corporation in a U.S. trade or business and the 
distributing corporation does not recognize gain on such distribution 
under Sec. 1.367(e)-2(b)(2)(i), then the distributing corporation may 
satisfy the requirements of this section by completing Part 1 of the 
Form 926, noting thereon that the information required by the Form 926 
is contained in the statement required by Sec. 1.367(e)-
2(b)(2)(i)(C)(2), and attaching a signed copy of the Form 926 to its 
U.S. income tax return for the year of the distribution.
    (f) Failure to comply with reporting requirements--(1) Consequences 
of failure. If a U.S. person is required to file a notice (or otherwise 
comply) under paragraph (b) of this section and fails to comply with the 
applicable requirements of section 6038B and this section, then with 
respect to the particular property as to which there was a failure to 
comply--
    (i) That property shall not be considered to have been transferred 
for use in the active conduct of a trade or business outside of the 
United States for purposes of section 367(a) and the regulations 
thereunder;
    (ii) The U.S. person shall pay a penalty under section 6038B(b)(1) 
equal to 10 percent of the fair market value of the transferred property 
at the time of the exchange, but in no event shall the penalty exceed 
$100,000 unless the failure with respect to such exchange was due to 
intentional disregard (described under paragraph (g)(4) of this 
section); and
    (iii) The period of limitations on assessment of tax upon the 
transfer of that property does not expire before the date which is 3 
years after the date on which the Secretary is furnished the information 
required to be reported under this section. See section 6501(c)(8) and 
any regulations thereunder.
    (2) Failure to comply. A failure to comply with the requirements of 
section 6038B is--
    (i) The failure to report at the proper time and in the proper 
manner any material information required to be reported under the rules 
of this section; or
    (ii) The provision of false or inaccurate information in purported 
compliance with the requirements of this section. Thus, a transferor 
that timely files Form 926 with the attachments required under the rules 
of this section

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shall, nevertheless, have failed to comply if, for example, the 
transferor reports therein that property will be used in the active 
conduct of a trade or business outside of the United States, but in fact 
the property continues to be used in a trade or business within the 
United States.
    (3) Reasonable cause exception. The provisions of paragraph (f)(1) 
of this section shall not apply if the transferor shows that a failure 
to comply was due to reasonable cause and not willful neglect. The 
transferor may do so by providing a written statement to the district 
director having jurisdiction of the taxpayer's return for the year of 
the transfer, setting forth the reasons for the failure to comply. 
Whether a failure to comply was due to reasonable cause shall be 
determined by the district director under all the facts and 
circumstances.
    (4) Definition of intentional disregard. If the transferor fails to 
qualify for the exception under paragraph (f)(3) of this section and if 
the taxpayer knew of the rule or regulation that was disregarded, the 
failure will be considered an intentional disregard of section 6038B, 
and the monetary penalty under paragraph (f)(1)(ii) of this section will 
not be limited to $100,000. See Sec. 1.6662-3(b)(2).
    (g) This section applies to transfers occurring on or after July 20, 
1998, except for transfers of cash made in tax years beginning on or 
before February 5, 1999, which are not required to be reported under 
section 6038B, and except for paragraph (e) of this section, which 
applies to transfers that are subject to Secs. 1.367(e)-1(f) and 
1.367(e)-2(e). See Sec. 1.6038B-1T for transfers occurring prior to July 
20, 1998. See also Sec. 1.6038B-1T(e) in effect prior to August 9, 1999 
(as contained in 26 CFR part 1 revised April 1, 1999), for transfers 
described in section 367(e) that are not subject to Secs. 1.367(e)-1(f) 
and 1.367(e)-2(e).

[T.D. 8770, 63 FR 33568, June 19, 1998, as amended by T.D. 8817, 64 FR 
5715, Feb. 5, 1999; 64 FR 15686, 15687, Apr. 1, 1999; T.D. 8834, 64 FR 
43082, Aug. 9, 1999; T.D. 8850, 64 FR 72553, Dec. 28, 1999]