Expanding Your Business Internationally? Know the IRS Rules First

Expanding a business overseas can feel like a growth milestone. A new market. A new customer base. Maybe a new legal entity in Sydney, Toronto, or Berlin. Operationally, it might be straightforward: register a company, open a bank account, start trading.

From the IRS’s perspective, though, something more significant just happened.

If you’re a US citizen, green card holder, or US entity, creating or investing in a foreign corporation doesn’t sit outside the US tax system. The IRS still expects reporting, and sometimes immediately, even if the company earns nothing in its first year.

Forming or Acquiring a Foreign Corporation

The first decision, whether you’re setting up a foreign corporation or simply opening a branch, matters more than many founders realize.

If you incorporate a separate non-US company, you’ve created a foreign corporation for US tax purposes. Ownership percentages suddenly become relevant. For example, US shareholders who own at least 10% of a foreign corporation may trigger detailed reporting obligations, often on Form 5471. And if US shareholders collectively own more than 50%, the company can be classified as a Controlled Foreign Corporation (CFC), which introduces additional rules.

None of that depends on profit. It depends on structure.

So if you form a Pty Ltd in Australia and own 100% of it from day one, you’ve entered a reporting framework before your first invoice is issued.

Contributing Capital or Assets: Where Form 926 Comes In

Now consider what usually happens next. You fund the new entity.

Maybe you wire $150,000 to capitalize it. Maybe you transfer intellectual property, a software platform, a trademark, or a customer list. Or you contribute equipment you were using in your US operation.

That transfer can trigger IRS reporting under Internal Revenue Code §6038B. In practical terms, it may require IRS Form 926, an information return used to report certain transfers of property to a foreign corporation.

Cash transfers are reportable if either:

• You own at least 10% of the foreign corporation immediately after the transfer, or
• Your cash transfers to that corporation exceed $100,000 during the 12-month period ending on the date of transfer

Non-cash property, including tangible or intangible assets, can also require reporting depending on the transaction. There isn’t a universal dollar threshold for those transfers.

Form 926 doesn’t calculate tax. It documents what moved, when it moved, its fair market value, and your ownership afterward. The IRS uses that information to monitor potential gain recognition and offshore ownership changes.

Even if the transaction qualifies as tax-free under corporate reorganization rules, reporting may still be required. Silence is rarely the safe approach here.

Ongoing Ownership Reporting

Once the foreign company exists and is funded, annual reporting may follow.

US shareholders meeting certain ownership thresholds often must file Form 5471 each year, disclosing the company’s financial statements and activities. If the corporation qualifies as a CFC, additional rules such as Subpart F income and Global Intangible Low-Taxed Income (GILTI) can come into play.

In other words, expanding internationally is not a one-time compliance event. It can become an annual reporting obligation.

Entity Classification Choices

Some business owners try to simplify matters by electing entity classification, also called “check-the-box” elections, which can alter how the foreign entity is treated for US tax purposes.

That strategy can be valid, but it doesn’t eliminate reporting by default. Elections must be properly filed, and the consequences ripple outward. A disregarded entity, for example, may change how income is reported, but does not erase disclosure duties connected to foreign operations.

Structure first. Elections second. Reporting always.

Deadlines and Penalties

For the 2025 tax year (filed in 2026), international reporting forms generally attach to your federal income tax return. The standard filing deadline is April 15, 2026. US taxpayers living abroad receive an automatic extension to June 15, 2026, with the option to extend further to October 15.

Failure to file required forms, such as Form 926, can carry penalties, including 10% of the fair market value of transferred property, capped at $100,000 per transfer, unless the IRS determines there was intentional disregard. Separate penalties may apply for Form 5471.

That might sound harsh. It is. Congress designed these rules to ensure transparency in outbound transfers.

Before You Expand Further

International growth can be smart. Strategic. Sometimes necessary. However, the tax side deserves attention at the planning stage, not after funds move offshore.

If you’re expanding outside the US and want to understand how Forms 926, 5471, or CFC rules apply to your structure for the 2025 tax year, Expat Tax Online works specifically with US business owners navigating cross-border reporting and compliance.