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Strap on Your Floaties, the Water is Rising

I’m astonished every year by the amount of reporting and compliance businesses must keep up with, especially small businesses. Think about it: 1099s, payroll tax, sales tax, federal tax, state tax, property tax, department of labor, corporation commission or secretary of state filings, reporting to banks, financial records, insurance, legal compliance, and so on. I don’t know about you, but I’ve barely started the list, and my head is spinning. I wish I had news of relief for you, but sadly, I’ve become accustomed to giving bad news as a CPA.

Back to History Class

There’s a scene in the “Wolf of Wall Street” when Jordan Belfort (Leonardo DiCaprio) meets with a Swiss banker and quizzed him on whether the bank would cooperate with U.S. investigations. The way this event is portrayed is somewhat comical, but the reality of these conversations was everything but funny to the U.S. government. The Bank Secrecy Act of 1970 (BSA) was passed in response to the proliferation of money laundering. Along with this came the requirement for U.S. citizens and residents to report their foreign bank accounts. To help with the enforcement of this, among other items included in the BSA, the Financial Crimes Enforcement Network (FinCEN) was established in 1990.

Fast Forward to Present Day

It’s surprising how few people know the Corporate Transparency Act (CTA) was passed in 2021 despite its widespread application. Well, class, it’s time to listen up. Not being aware of this act in 2024 will be like brewing your coffee in the morning without the coffee pot and having your coffee spill all over the counter and floor. And yes, I’ve done that—multiple times. Most companies are subject to the new Beneficial Ownership Information Reporting as part of the CTA. These reports will be administered and filed with the FinCEN. This report aims to make the ownership of certain entities more transparent. This is meant to make it more difficult for “Wolf of Wall Street” types to hide or benefit from illegal gains.

Who Are the Unlucky Ones?

Both domestic and foreign entities considered “reporting companies” must file the Beneficial Owner Information (BOI) Report. A reporting company includes corporations, limited liability companies, and other entities created by filing a document with a secretary of state (SOS) or any similar office. That’s essentially every entity. This may even include certain trusts, business trusts, or foundations if the state they are created within requires filing a document with the SOS or a similar office.

Everything Except Your Blood Type

Reporting companies must report the entity’s legal name, trade name, street address, jurisdiction of formation or registration, and Taxpayer Identification Number. In addition to this information, reporting companies will need to report the following information on their beneficial owners:

  • Name
  • Date of birth
  • Residential address
  • Identifying numbers from acceptable identification documents such as a passport or U.S. driver’s license.

A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s interest. This sounds like a simple determination, but I assure you it’s not. In fact, most of the FAQs from FinCEN regarding who a beneficial owner begins with “but that may depend.” Have fun reading that…

Delay Delay Delay

Companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial BOI report. Companies created in 2024 aren’t so fortunate. These companies must file within 90 calendar days of receiving notification that their creation or registration is effective.

Let There Be Exemptions

There are 23 types of entities that are exempt from the BOI reporting. Many entities are exempt because they must report similar information through other compliance. However, two exemptions that might apply to you are the large operating company and the inactive entity exemptions. The former employs more than 20 full-time employees in the U.S., has reported gross revenue of over $5 million, and is physically present in the U.S. The latter is one that was in existence on or before January 1, 2020, is not engaged in active business, is not owned by a foreign person, does not have any assets, has not had a change in ownership within the preceding twelve months and has not sent or received more than $1,000 in the preceding twelve months.

Fingers Pointing in Every Direction

The $10,000 question is, who will file these returns on behalf of companies? Literally, since $10,000 is the maximum penalty for failure to file these reports. Most CPAs won’t be filing these on behalf of their clients (including us) even though FinCEN is within the envelope of the Treasury Department. It will also be difficult to convince many attorneys to file these reports as they won’t always have all the information necessary or be notified of changes.

As if the high penalties aren’t enough, there’s also the threat of imprisonment for a person who willfully violates the BOI reporting. You can find more information on this new compliance requirement by visiting the FinCEN website. Happy New Year!

BeachFleischman provides accounting, assurance, tax, and comprehensive advisory services for professionals in the real estate industry. Contact us today to learn more.

This article was originally published in the February 2024 issue of TREND report.

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