Asked in Tax Law and International Law for California

Q: What happens if a person fails to disclose ownership of a foreign corporation that doesn't have any business activities?

What would the implications be for a U.S. tax individual who, unaware of the requirements to report ownership of foreign businesses, fails to disclose their ownership interest in a foreign company? Suppose this company isn't active and was believed to have been seized by a foreign government for political reasons, and the owner is now a political asylee in the U.S. I understand this is a complex scenario, but even a general response would be very helpful to provide this individual with some direction on how to proceed.

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1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA
  • Licensed in California

A: U.S. taxpayers, regardless of where they reside, are generally required to report their worldwide income and disclose foreign financial interests. Failure to report foreign financial accounts and ownership interests can result in significant penalties under the Foreign Account Tax Compliance Act (FATCA) and the Report of Foreign Bank and Financial Accounts (FBAR) requirements. Even if the foreign corporation is inactive, U.S. tax obligations might still apply.

Your status as a political asylee might be relevant in explaining the oversight, but it doesn't automatically exempt you from the reporting requirements. If you believe you have a reporting obligation, consider filing amended returns and related forms to disclose the foreign corporation. The IRS has certain programs, like the Streamlined Filing Compliance Procedures, that might help reduce penalties for non-willful failures to report. Seeking guidance from a tax attorney or CPA experienced in international tax matters is crucial. They can assist in assessing potential liabilities and recommending the best way to become compliant.

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