Developments in Beneficial Ownership Information (BOI) Reporting Requirements

Jennifer Sklar:I did.

Jeffrey Kelson:Yeah.

Jennifer Sklar:Just the fact that it's quite unusual but this particular case, they found summary judgment for the plaintiff and the decision was specifically geared towards the plaintiff. So when they made the ruling, they said that this provision is unconstitutional essentially with respect to the plaintiffs of the case. And generally when you're dealing with constitutional issues in cases, they're not plaintiff specific because it's the constitution and it applies to everybody. And so it's very rare to see that. So we have to see how that unfolds because it's something I've never seen before.

Jeffrey Kelson:Thank you. But Mima, let's go over this, the overview of the CTA as presently constructed and we'll let you know if there's any changes based on the case. Important dates, who the reporting companies are, beneficial owners of the reporting companies, who are they. The required information, the somewhat Draconian penalties of non-compliance and specific considerations. So Corporate Transparency Act became law in 2021, but it first applies in 2024. That's where we are today. The CTA requires certain companies, and you'll find that certain is most, created a register to do business in the United States to report with FinCEN, the Financial Crimes Enforcement Network.

What is it trying to accomplish? Okay, so what's the major goal here? What are we up against? It's intended to set a federal standard from corporation, okay. Protect national security interests, protect interstate and foreign commerce. Support law enforcement efforts to counter the money laundering, financing of terrorism and other illicit activities that occur when the government is unaware of who the beneficial owners of entities are and to bring the US in line with international standards as well. So it's really to get insights to all these, and you'll see it smaller businesses, but even then there's exceptions that even larger businesses have to report in a lot of cases to find out who the beneficiaries are. Sometimes it's done to get around sanctions. You can imagine it encompasses a broad palette of things they're trying to accomplish with this act.

As I said, it starts January 1st. The portal for FinCEN is open. As a firm, we have also identified two providers that can make it a lot more administratively simpler to file. Companies in existence before January 1st, 2024 will have the entire year of this year, by January 1, 2025 to file the initial report. Companies formed, as I mentioned at the top, after January 1st will have 90 days. So you could actually have a new company that you formed being required to file before an existing company as of 12/31/23. It's a 90-day time limit to file their initial report and the earlier of the date of creation or the date of registration with their governing jurisdiction. So like I said at the top, if it's January 2nd, by the end of March, end of this month, you'd have to file. You'll see what's embodied in the filing contest. Companies formed after January 1st, 2025, so that's next year, okay, will have 30 days.

So the 90 days for 2024 shrinks to 30 days during 2025. Modifications, changes in beneficial ownership, changes in C-suite, there is a 30-day window to report changes after the initial report and inaccurate company reports must be corrected. So you have a 90-day grace period with no penalties to correct it or 30 days after you became aware of the inaccuracy. So there's a lot of procedures here. It's the same timeline to correct inaccurate information for beneficial owners or company applicants. Okay. So that's when. Who? Get this, millions upon millions of small companies. LLCs, single-member LLCs, S-corps, small C-corps, possibly sole proprietorships, depending on state filing requirements.

FinCEN estimates 32 million plus reports will be filed by January 1st. I have a sneaking suspicion that's even more than that, that are going to be required to file. And as we mentioned, who would be required to file? It depends on the state in which the company files or creates. And unless the company falls under exemptions and there's 23 of them, a report must be filed. So that's the who, when. And we're going to talk about the house reporting companies. So Jen, you want to take over?

Jennifer Sklar:Hi everybody. So I'm here to talk about who is covered by the CTA. So this is the who expanding on what Jeff mentioned earlier. So domestic reporting companies, these are corporations, LLCs or essentially any other entity that is created by filing a document with the Secretary of State or a similar office in the US. It also includes foreign reporting companies, which is essentially a corporation, an LLC or another entity formed under the law of a foreign jurisdiction and registered to do business in the US by filing a document with the Secretary of State or a similar office.

It may include a statutory trust, a business trust, or a foundation. And I know we had a question in there in our chat earlier about whether it includes a foundation. So it may include a statutory trust, business trust or foundation depending upon whether the entity is required to file with the Secretary of State, if it's domestic or required to register to do business in the state if it's foreign. And FinCEN has a small entity compliance guide that's been issued that has a flowchart to help you figure out whether it's a reporting company. And then you have 23 specific entities that are treated as exempt. So this is the list of exempt entities. The criteria for each exemption is also provided in a check the box format in FinCEN small entity compliance guide. So that also will help you to figure out where you fall and whether or not you qualify for exemption.

So as you can see from the list, exempt companies are in areas that are already highly regulated. So FinCEN decided that it wasn't necessary to impose additional regulatory requirements. A few notable ones. So we have the accounting firm exemption, essentially applies to a public accounting firm that's registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002. So it's not a general exemption for all accounting firms. We also want to note that a pooled investment vehicle that's a foreign entity is subject to special reporting rules, which will be discussed later in the presentation. And then the biggie, the large operating company, which will also be discussed, well actually in the next slide.

Jeffrey Kelson:Also an active entity. So absolutely owns nothing, doing nothing.

Jennifer Sklar:Exactly. So large operating companies, how do you satisfy that requirement? So to be considered a large operating company, the company must employ more than 20 full-time employees in the US. And these employees must be employed by that particular company. It doesn't include employees across related companies. The company has to have an "operating presence" in a physical office in the US and they have to file an income tax return or an information return and they have to report more than 5 million in gross receipts or sales. And this is all US source, so it has to be more than 5 million in US source, gross receipts or sales. And that's your large operating company. Now we have some subsidiary rules.

Jeffrey Kelson:The thing about the large company is it has to be both 20 employees and 5 million of receipts, not one or the other, so I think. There's been a lot of confusion about that.

Jennifer Sklar:Yes, thanks Jeff. So we also have gotten, since we last did this, we also had gotten a lot of questions in particular about the subsidiary rules. We may have actually gotten something in the chat as well today. So we thought we would add a slide to clarify that a bit. So subsidiary companies of exempt companies are exempt as well, but to be exempt the subsidiary must be wholly owned or controlled by one or more of exempt entities. And controlled here means more than 50%. So if you have a company that's 50% owned, 50% or less owned by an exempt entity, they will not automatically be exempt by virtue of being owned by an exempt entity. They would have to have some other exemption that would apply. There are other special reporting rules that apply where an exempt entity has an ownership interest in an entity and we'll discuss that later on. I believe Sarah will be talking about that.

And the other question that we got was regarding exempt status or the question that we got often after our last presentation. So exempt companies are not required to file any reports or documentation to show that they're exempt. Companies that become exempt after they initially file a report would need to file an updated report. And we'll talk a little bit about updating reports later on. Identifying the company and checking a box, noting that it's newly exempt status. That's what would be required if it was formerly not exempt but has become exempt. Companies that lose their exempt status should file a report within 30 days of the status change. Again, there's no method for exempt companies to produce any documentation or to send any documentation showing that they're exempt. So you may want to file when in doubt. And I think that's it for reporting companies. Now we're going to talk or Sarah's going to talk about beneficial owners.

Sarah Adkisson:That is correct. So now the once you've determined whether or not you are a reporting company or if an exemption applies to you, you've determined you're a reporting company. So now you have to identify and report your beneficial owners. So how do you determine that? So a beneficial owner under the statute is defined as any person who exercises substantial control either directly or indirectly or owns or controls at least 25% of the reporting company. So substantial control is extremely, extremely broad. They list three very specific ones and then a catch-all. The first one is any senior officer, so like a C-suite level officer, a president, a CEO, a CFO, general counsel, any high level officer. That person's going to have substantial control under the statute.

An individual with any authority to appoint or remove any of the senior officers or appoint and remove a majority of the board of directors or a similar body, that person's going to have substantial control. Any important decision maker who controls or directs or influences important decisions about the reporting company's business, finances or structure, that person's going to have substantial control. And then any other person who exercises substantial control. And this is a catch-all for those instances where maybe... One of the examples given was maybe a founder or CEO has stepped aside but everyone still listens to what they have to say and they influence decisions indirectly. That person could still be considered to have substantial control.

So Jennifer has mentioned a couple times the small business compliance guide, that does have some very good information. It includes some examples of important decision makers that you can refer back to if you have questions there, which includes some of the definitions of who has a substantial control for business. Well, what do you consider business or structure or finances? Ownership interests are also defined. So anybody who has the 25% ownership interest, well, how do you define an ownership interest? This is going to include any stock equity or voting rights or capital or profit interest, any convertible interestments. So any interest that could be later converted into equity stock or voting rights or a capital or profit interest and options and privileges and options and privileges are treated as if they have been exercised or converted for the purposes of calculating an individual's ownership interest. So even if it hasn't been exercised yet, when you do the calculation to determine, you act as if it has been exercised or converted.

So some of the examples for calculating ownership interest, and again the small compliance compliance guide has a lot of this information as well and some more depth. But just broadly speaking, for companies that issue shares of stock, you're going to calculate the ownership interest as a percentage of the total shares of stock issued. In situations where there have been different types or classes of stock and those have more voting power or they represent more value of the company, you're going to do two calculations and then the higher percentage will be used to determine if somebody has a beneficial ownership interest of that 25%. For companies that issue capital or profit interests, it's just calculated as a percentage of the total outstanding capital and profit interests. And then for companies where they don't fall into either of those two categories, it's going to be any individual who owns or controls 25% or more, any type or class of ownership interest in the company.

So we've gotten a lot of questions about determining ownership interest in the calculations and everything. So we thought we would run through an example here of a more complex, not nearly as complex as I'm sure we've seen in other situations, but a more complex structure to see who would have to report, who has substantial control, who has an ownership interest that requires reporting. So we have this set up of reporting company incorporation with stock as the ownership interest. We have outside here this individual who maybe isn't directly involved with the company, but they do have important decisions because they're the board head. The reporting company is owned by two other companies. Company Y, company Z. Individual A is CFO of both companies E and company Y. Individual B owns 70% of company Y. Individual C is the CEO and president of company Z. Individual D and E both own 25% of the stock.

So we're going to go through who has to report what their ownership interests are and why they might have to report. So individual A owns 25% of the reporting company through their ownership interest in Y and Z. and they're the CEO or CFO of both of those companies. So they're both have 25% or more of beneficial ownership and they have substantial control. So individual A must report. Individual B owns 35% because they own 70% of a company that owns 50%. So individual B must report. Individual C is CEO and president of company Z who owns 50% of the reporting company. So individual C must report because they have substantial control. Individuals D and E own 12.5% of the reporting company. They do not need to report, they do not need to be reported. Individual F has substantial control because of their board decisions so they must report.

So you can see it can get... Even if you think you might not have to report, you might in fact have to report. It can get pretty into the weeds there. So there are some exemptions for owners, just like there's some exemptions for the reporting companies. So there are going to be certain individuals or owners who don't have to report, but it's very narrow. So a minor child will not have to report or can choose not to report the minor child, but instead they will have to report the legal guardian's information. So there's still a reporting that must be done. It just does not have to be the minor child's information. A nominee, intermediary, custodian or agent. So an individual acting on behalf of the actual beneficial owner as an agent, the only the actual beneficial owner's information would be reported.

Employees, if the employee is at will employment could be fired at any time, is not a senior officer does not have any kind of substantial control, that information does not need to be reported. Inheritors, which I found very interesting because I feel like they really just beneficiaries. If the individual's only interest is that they will inherit an interest in the reporting company in the future, you do not have to report that individual's information. Now obviously once they do inherit that, then that would be a change and you'd have to report their information. And then any creditors, if their only interest is through a right or interest for repayment of predetermined money, then you do not have to report that person's information either. Okay, now Jen's going to take back over.

Jennifer Sklar:Sorry about that. Had to happen and I had to be the one. Okay, so I talked about what constitutes a reporting company, and now we're going to talk about the information that a reporting company must report. So the full name of the company, any other trade names that they may use doing business as, all of that. The street address of the company's principal place of business. It can't be a PO box, it can't be a third party address, it can't be a WeWork, it has to be an actual physical address of the particular company.

A foreign company that doesn't have a principal place of business in the US has to report the address that the company uses to conduct its business in the US. Because remember, in order for a foreign company to be within these rules, they have to be registered to do business in the US. They have to have a permanent establishment in the US. The jurisdiction in which the company was created or organized and then an IRS issued a taxpayer identification number. So in the foreign reporting company context, they, Sarah, correct me if I'm wrong, but they do not have to actually get an EIN, they just need to report if they have a foreign identification number in their jurisdiction. But I don't think we have to start getting EINs for foreign entities.

Sarah Adkisson:So I believe part of the reason for that is because in the regulations and the proposed it was pointed at how long and how hard it could be for foreign entity to get an EIN in 30 days originally or even in 90 days. So they added that in.

Jennifer Sklar:Okay. In the international tax context, we do it all the time when we make check the box elections, we have to get them and we have to call the IRS and it's not fun. But I also wonder if maybe a lot of these foreign entities maybe would have an EIN because they may be doing an 1120-F if they're doing business in the US. So maybe they already have one. But yeah, that's an interesting point. Okay, so that was the reporting company information. What's the beneficial owner information? Full legal name, date of birth, current residential or business address. A unique identifier number, which I believe Sarah will go into a little bit. A unique identifier number from a non expired government issued photo ID. Foreign passport passports will be accepted if the beneficial owner doesn't have a US issued ID and then they require an image as well of the government issued photo ID.

Sarah’s covering the company.

Sarah Adkisson:Yeah. So in addition to addition to the information that you have to report about the reporting company and the beneficial owners for companies that are formed after January 1st, 2024, there is yet another reporting requirement and this is for company applicants. If you are forming after January 1st, 2024, you must report at least one, but no more than two direct or indirect company applicants. So a direct company applicant is going to be the person who either physically went to the office and filed the document that created or registered the company or I guess physically clicked the button that filed the document that created or registered the company. Indirect company applicants are going to be the individual who is responsible for directing that person to file the document or create the document.

The same information that must be reported for the beneficial owners must be reported for the company applicants. Unlike beneficial owners, if there's any change to that information, if their passport expires, their driver's license expires, they move and have a new address and a new driver's license. You do not need to file an updated report or change that to update any of that information. It's a one and done. And like Jennifer said, we're going to talk a little bit about FinCEN identifiers. Individuals and reporting companies can apply for a unique FinCEN identifier. You are not required to file for a FinCEN identifier. There have been some people who have asked if they have to do this, you do not have to do this, you can do this. You still have to report the same information that you would normally be reporting as the beneficial owner information to receive the FinCEN identifier.

The company will then, instead of reporting your information, report the FinCEN identifier, when they report their beneficial owner information. The individual is responsible for keeping that updated with FinCEN anytime any changes occur, again within 30 days. Companies again will also be able to apply for an identifier that is just checking a box when they file their first BOI report. One of the things for the FinCEN identifier is if somebody is a beneficial owner in multiple companies, it may be easier for them to just get an identifier and have that be reported and not have to file an updated report every single time they change it. Instead, they just file and update it then set an identifier change. It's supposed to make it less burdensome. All right, and Jeff, if you want to walk people through the actual filing of the report.

Jeffrey Kelson:Yeah. Well, it can be filed as early as January 1st. So the portal is open, many companies have filed, many haven't, probably a lot more haven't. It's open to the end of the year for 2023 entities in existence at the end. All reports must be filed electronically through FinCEN database portal. There are many companies and we've identified too that provide easier solutions to upload information and they do a lot of the filing on FinCEN from a very software base. And one is a little more hand holding because there are a lot of questions. We are talking about a lot of questions. We got up to 137 questions from of you guys. So can imagine how many questions some companies have. Some are easy to figure out and some may be less. Updated reports must also be filed electronically. So there's a change in the C-suite or change in the beneficial owner, that would have to be reported as a 90 days for 2024.

So if a reporting company's unable to file electronically and must contact FinCEN, but I think everyone can pretty much file electronically. A lot of it is just uploading a copy of your driver's license of the beneficial owner or the passport. Not very difficult, but it is, yeah. There is some information you'll need to do all the filing plus the EIN number. I know we're getting a lot of questions on that. We'll try to get to the questions. I've tried to answer a lot as we've gone along but some of them are novel questions I haven't received before. So you guys are getting into the nitty-gritty.

Okay, when and how? The three online filing options, there's a downloadable PDF that can be completely offline and once it's completed, you upload through the FinCEN portal as an online form directly with FinCEN or an application programming interface, a third party filing options, which we have identified too. I've done one of my own entities through it. It took me about five minutes. And pretty straightforward and they do give you communications to update if there's any changes. So that's what we have. Okay, let's go to the next. And I think that is Jen. The key steps for 2024.

Jennifer Sklar:Yeah, so this is a synopsis of what we've been talking about in a nice little digestible format here, given all the information we've been providing. So step one, you determine if the company is considered a reporting company and whether there are any exemptions that apply. I do want to address, I saw a request, a question repeated often asking about a disregarded entity and whether they have a filing requirement. And the answer is yes, because remember this is FinCEN, this is not the treasury, this is not the IRS. So disregarded entities are a tax fiction. So really we're looking at entities that file with a state, and that would be any LLC including a disregarded entity. So similar to the FBAR where a disregarded entity is required to file, a disregarded entity would be required to file here as well.

So once you've determined that you have a reporting company, you look to determine who the beneficial owner is and you identify anyone who has substantial control, you identify anyone who owns or controls at least 25% of the ownership interest. And then you identify any exempt owners. So I think a lot of other people were also asking how many do you have to report all C-suite? Anyone with substantial control, anyone with an ownership of at least 25%. You then determine if the company applicants are required, as Sarah had discussed, do you apply for the FinCEN identifiers if the identifiers if desired? I saw a lot of smiley faces going up when Sarah mentioned that they're not required. Just another thing that we need to remember, we don't have to remember. You collect required information from the beneficial owners and the company applicants. You report the information when available.

It is now available as Jeff mentioned, as of January 1st, 2024. You file your initial report within 30 days of creation or formation or within one year of the effective date of January 1st, 2024. So as Jeff mentioned earlier, we have till the end of the year if the company was in existence before January 1st, 2024. And of course, and I think we talk a little bit more about this later, I think the most important thing to remember here is monitoring any changes in the company. They don't seem to have any de minimis exception. You change your address, your CEO, whatever it is, you may have to repeatedly monitor those changes and update the report. So fingers crossed that case will ultimately be decided favorably. So that's the key steps in the reporting. So now we move on to the penalties. So we've got civil and criminal penalties.

The civil penalties for willfully providing false information or failure to report is a fine of up to $500 a day. Criminal penalties for willfully providing false information or a failure to report is a fine of up to 10,000 and or up to two years in prison. Individuals who purposely provide false information or who fail to provide information are subject to both civil and criminal penalties. And there are no statutory penalties for non-willful. So again, this is also similar to an FBAR, willful versus non-willful, failure to file is not technically defined. So we'll likely see similar issues here that we do in the FBAR context when we're trying to determine whether it was willful versus non-willful.

Jeffrey Kelson:If you can go back slide. I think this is why so many people are concerned that civil penalties of $591 a day, harsh. The criminal penalties do we need to even, goes without saying. So this is why it's got everybody's attention. The one thing the three of us have focused on is they're looking at willful. They're looking to impose these on willful neglect. So we don't think they're going to be jumping on this. If a company has 100 companies reported and there was 101 and they missed one by accident, but this is the first year we're just hypothesizing. But they did put the word willfully in there for both civil penalties and criminal penalties. So take it for how it reads. Okay.

Jennifer Sklar:Thanks Jeff. Oh, and I think I said 500, but 591 because there's inflation. Sorry about that. There was $91 of inflation since the last time that we did this, there was $91 of inflation. So there you go.

Sarah Adkisson:Could we actually go back to the penalties? Because one of the things I did want to point out is that the penalties are on the individuals. There's not really penalties necessarily for a company. And that's part of I feel why people find it very Draconian is because the penalties are imposed on the individuals not on the companies for failure.

Jennifer Sklar:

Draconian for sure, good point.

Jeffrey Kelson:

That's why that case attracts so much attention because a lot of people saying, "Okay, if we don't have to file," but as we said at the top of the hour, we don't know how that case is going to pan out and who it really applies to. Or if it does give a suspension, it needs to be seen.

Jennifer Sklar:

We'll see how that... Yep. So we have some specific considerations to talk about. One of them is the monitoring upkeep, which I mentioned earlier, which is probably the most important part of all of this because you can initially say, "Okay, I qualify for all of this," but then you literally have to track everything that's going on within the company in terms of ownership, in terms of who controls the company and addresses all of that. So it's a lot to keep track of. So some examples, you have a minor child beneficial owner that reaches the age of majority. Then that particular person is going to have to file.

Any changes to the reported information, as I mentioned, the reported information regarding the company, a change of address, doing business as all of that, changes in the beneficial owners. So you have new senior officers, a CEO, a CEO, a CFO. Change in ownership interests that meet the threshold, the at least 25% threshold, and then the death of a beneficial owner. That must be reported within 30 days of the decedent's estate being settled. Any change to the beneficial owner's name, address, unique government-issued ID, identifying number provided in their previous report, any changes to a beneficial owner's reported ID would also require an updated photo. And then this only applies to reporting company or the beneficial owner information. So that company applicant information that Sarah had discussed earlier would not require an updated filing.

So we have some special reporting rules. So reporting, we talked a little bit about this, but a reporting company that is owned by an exempt entity must report the names of all of the exempt entity owners. It's not required to report information about any beneficial owner whose ownership interests are held solely through one or more exempt entities. And then we have this concept of the... I hit on this a little bit earlier. The foreign-pulled investment vehicle. So a foreign-pulled investment vehicle is not required to report information about beneficial owners or company applicants if the company was formed under the laws of a foreign country, and it would be a reporting company, if not for the pooled investment vehicle exemption, which was one of the exempt entity, the exempt entities that we discussed earlier.

To qualify for the pooled investment vehicle exemption, it has to be private funds that are operated or advised by any one of the following entities. So a bank, a credit union, a broker, an investment company, investment advisor, those are all examples. So you only in this case have to report one individual who exercises the greatest authority over the strategic management of the reporting company. So that goes to, I think one of the questions we got again, which talked about C-suite, do we have to mention everybody? So in general, yes, but for a foreign pooled investment vehicle, you only report one individual who exercises the greatest authority. So it's an abbreviated information that's required here.

So we also have some special rules for a reporting company that's owned by a corporation. So when a corporation owns 25% or more of the reporting company, it doesn't report the corporate entity. And there are two instances where people are happy about that. I saw some thumbs up. Two instances where the reporting company may report the owner companies. So one would be where a reporting company reports the name or names of an exempt entity or entities rather than an individual beneficial owner who owns or controls ownership interests in the reporting company, entirely through ownership interests in the exempt entity or entities. And I mentioned that on the slide earlier, or another instance would be if the beneficial owners of the reporting company and the intermediate company are the same individuals, then the reporting company can report the identifier and the full legal name of the intermediate company through which an individual is the beneficial owner of the reporting company. And I think that is it for the special circumstances. And I think we're going back to Jeff for some takeaways.

Jeffrey Kelson:

Takeaways, yes. You got me again. Key takeaways. Key takeaways, so like I said, it's open, FinCEN is open. We've identified a few providers that can make it easier to file. There's a cost to that but some respects they keep track and they're good at sending emails to see if there's any changes and the changes are usually at a very discounted amount. The filing must be done electronically, I think, in this day and age that's a given. Many firms will not be completing these reports. First of all, that's an open-ended thing. One is some are exempt. Some firms, the whole thing is, is this really practicing law and in that case, maybe the attorney should be doing it. On the other hand, a lot of companies of that size, these are smaller companies, that might not have counsel or the only council they ever encountered was the one that set up the company.

So in that case, going through these other service providers themselves, the clients themselves, the companies themselves might be a solution to this. And like I said, there are streamlined ways of doing this. When in doubt, you saw the penalties, when in doubt, but I don't know. I'm 50/50 whether I'm exempt or not file. Better to be safe than sorry. Must track changes in beneficial owners. So this is a subtle one. So you didn't have a change and the company was owned by four individuals, 25% each. There was no change, but your CFO left and you hired a new one. That's a change. The new CFO would then have to put their information on and it would be an update. So even where there haven't been changes in ownership, there can be changes in individuals who have control and the CFO, the whole C-suite plus the general counsel is deemed to be that.

And even if they're not deemed a CFO, their title is not officially a CFO, but they act as a CFO, they would still have to file. So just by taking the title, which from them doesn't exempt them from filing. And as we said, FinCEN has not clearly defined all terms. More guidance is forthcoming, although with this case right now, I think right now they have a lot on their plate with appealing this case, seeing what the ramifications are. We'll keep everyone apprised. We've got a whole bunch of questions guys. I don't even know. I think we've answered a bunch.

Should accounting firms do this work, doing so, as I said, it's a very vague area. So accounting firms do have some rights to do it but I think each individual situation might vary. If we haven't filed yet, are we already late? Not for an entity in existence as of 12/31/23 have to the end of the year. A new entity, even then you're not late because 90 days, say the government was closed in January 1st year, except the company in January 2nd, 90 days would be the end of March. You still have some time. See, there's no CPE for this, sorry guys.

We can't say if it's been put on hold. It's too vague the way the opinion came down. In that case I would just say that there's some ambiguity around whether this will apply to just the plaintiffs, if they're sustained on their appeal or whether this applies to everyone. It's in a state of flux. Is a disregarded entity for tax purposes considered? No, all entities, as Ken mentioned, single-member LLCs, S-corp, C-corp, LLCs, will have to file unless they're exempted. Large company, they're registered as a broker or they have some other credentials in that respect or they're totally inactive meeting no assets, no activity, just the name. That would be exempted.

Sarah Adkisson:

Jeff, we had one question that I thought was a pretty good question. Somebody asked exactly how do you determine formation or registration date and FinCEN does directly address that question. They say that it is within 90 or 30 days after receiving actual notice of the company's creation or registration or when the Secretary of State or similar office first provides a public notice of its creation or registration. So it is entirely possible that there's a public notice like it's posted somewhere on a website or something like that to searchable before you get maybe say a letter saying that you are registered.

Jeffrey Kelson:

We have almost 300 questions. A lot of them talking about the Alabama court case funding. Yeah, it's thrown it up in the air but we don't know how this is all going to settle. We don't know if this is just going to be a suspension, whether it has any teeth, everybody else has it just applied to the plaintiffs. I think it's better instead of a steady flux. But I'm sure we'll get a lot more information shortly.

Sarah Adkisson:

Hey Jeff, with that, I think it is important to mention the fact that the order that the court did put out does say that the treasury is enjoined from enforcing it to the plaintiffs. So the confusion is the fact that the court said this is unconstitutional, but then the court said, but only, as Jen pointed out, but we're only barring Treasury from enforcing it against these plaintiffs. So there's confusion about, well, how can you say that something's unconstitutional and then say, "But you can't enforce it only against these plaintiffs."

Jennifer Sklar:

That's the biggest issue.

Sarah Adkisson:

That's the main confusion because the order itself, some people could argue is pretty clear that it's just the plaintiffs and everyone else might have to file. So that's why everyone is unsure, is how narrow is this truly when it's very broadly saying it's unconstitutional.

Jeffrey Kelson:

There's a question about-

Sarah Adkisson:

That was a very lawyer-y response.

Jeffrey Kelson:

Yeah, well you're a lawyer.

Jennifer Sklar:

That's what happens.

Jeffrey Kelson:

There's no US employee, someone suggesting and all the shelters in Italy and Germany. Yeah, they'll have to file. That's exactly who they're looking for by the way.

Jennifer Sklar:

Right. What else is next?

Jeffrey Kelson:

This is where they're going in case they couldn't figure it, they're looking at especially foreign ownership of US entities.

Jennifer Sklar:

Someone asked about said, "I know there's specific criteria for exemptions. I'm unsure if we fall under that umbrella, what's the best way to figure it out?" I think I mentioned the small business compliance guide. They literally give you a tree, if you meet this then this for reporting for whether you're exempt. So I think it's helpful to take a look at that guide and just go through all of the steps and you would probably be able to figure it out.

Jeffrey Kelson:

A lot of people ask us for the two solution providers, we are sending an email out to all clients with those names hopefully this week and to everybody in our firm so they can share that with you. If you're not a client, let me know and we can discuss that. But yeah.

Sarah Adkisson:

Jeff, we actually had a few questions about the question that we had last week about a company that would not be considered exempt as of 12/31/23, but maybe would be considered a large operating company at some point in 2024. It's not clear if FinCEN has completely addressed it but our interpretation from between the regulations and the statute is that a company that is in existence as of the effective date of the regulations under the regulations, if a reporting company would still have to file an initial report by January 1st, 2025 and then it seems would then have to file an update report saying that they are exempt.

Jeffrey Kelson:

Yeah. I know.

Sarah Adkisson:

Hopefully there will be some clarification that comes out on that. But right now that does seem to be what you would have to do.

Jeffrey Kelson:

Yeah. Somebody asked the $60 million question. We have approximately 600 entities. I know, I feel your pain. Yes. If they're not exempt or if they're not owned by someone that's exempt a 100%, you have 600 filings. I know. We know. It's a mess. It's administrative burden. What else can we say? There are ways to bulk load maybe. I think some of the providers might be able to bulk load the filings, but yeah, we understand.

Sarah Adkisson:

Oh, we had a couple questions about the New York version of this as well.

Jeffrey Kelson:

Yeah, by the way, we just have this last slide. They have asked them to delay it. We don't think it's going to be delayed but with the case, who knows now. And FinCEN has advised that they will issue more guidance. We're still waiting. They have issued some. Asian majority is at 18 to 21. I know don't, Sarah.

Sarah Adkisson:

I would assume 18.

Jennifer Sklar:

18, I would think.

Sarah Adkisson:

Yeah.

Jeffrey Kelson:

So if my COO does not own any of the company, he's not relevant here, correct? Incorrect. The COO by nature has control of the company has to file.

Sarah Adkisson:

They have substantial control even if they're not a beneficial owner.

Jennifer Sklar:

On that note, actually somebody asked, Jeff and Sarah, somebody asked, they said they have a COO that doesn't have any authority. Do they have to file? I remember seeing that. So I guess on paper they don't have any authority, but their title is COO. What would you do then?

Sarah Adkisson:

I would still do it, but I'm very risk averse.

Jennifer Sklar:

Well, I mean it's strange for a C-suite member to not have substantial authority for this purpose. I think maybe they outsourced the COO or I may be combining one of the 255 questions that we've gotten.

Sarah Adkisson:

Somebody asked us about fractional CFOs.

Jennifer Sklar:

Yeah, yes, we saw that too.

Jeffrey Kelson:

A single member LLC doesn't have an EIN, so yes, yes they still have to file. Might get a little tricky how you put the EIN if there's no EIN. And we're getting a lot of questions. This is not a 100% hammered out this law. A lot of questions about trust, Jen and Sarah.

Jennifer Sklar:

Yeah, so there's very specific guidance about whether, I mentioned it earlier, whether business trust, statutory trusts or even foundations go under. I think the general rule is that if there's some registration with the state, then they would likely have to be reported. They would likely have to report.

Sarah Adkisson:

Yeah.

Jennifer Sklar:

That's how I interpreted it. Do you agree, Sarah?

Sarah Adkisson:

Yeah. It's-

Jennifer Sklar:

It just seems to all be-

Sarah Adkisson:

... very tied to what are your registration with the state?

Jennifer Sklar:

Yeah, including for foreign entities. So I think it's consistent across all domestic and foreign entities.

Jeffrey Kelson:

We get a lot of questions about people that are COOs or CEOs or CFOs or GCs and don't have any interest. They need to file. Yeah, because they have significant... It's not just beneficial ownership, it's also significant control.

Sarah Adkisson:

Yeah, that's actually a really important thing. It's not both. It's not ownership and control. It's one or the other.

Jeffrey Kelson:

You meet one or the other-

Jennifer Sklar:

You could have both-

Sarah Adkisson:

Someone also asked, "What if somebody owns less than 25% of the overall stock, but it's been 100% of the voting stock?" That person would be considered to have substantial control and ownership because you take the highest percentage if there's different types of class. So if they only own the case 20% of stock, but it's a 100% of the voting stock then they have a 100% control, really.

Jeffrey Kelson:

Somebody asked about the name of the case.

Sarah Adkisson:

So its powerful that you have more than that.

Jeffrey Kelson:

National Small Business. I think it's Association, Sarah?

Sarah Adkisson:

Association et al versus yellen et al. And it's in the northern district of Alabama.

Jeffrey Kelson:

You have six partners in an LLC and each owns the same percentage, meaning they all own less than 25, does each need to be reported? No, because they own less than 25. Unless they have a substantial significant control. If a hedge fund is an IRA, yeah, that should be exempted because you're registered. That's why you see a lot of the exemptions applied to registered companies.

Jennifer Sklar:

Someone was asking about attribution, this is not tax. There's no family attribution.

Jeffrey Kelson:

No, no attribution.

Jennifer Sklar:

Same with FinCEN, excuse me, the FBAR. Other than ownership through an entity of more than 50%. But there's no familial attribution there. There's none of that. So again, this is not a tax concept. This is FinCEN.

Jeffrey Kelson:

Somebody asked if... Yeah, go ahead.

Sarah Adkisson:

People are asking about the answer to the fractional CFOs. And I think Jen, correct me if you think I'm wrong, but I would say it comes down to if that person has any substantial control over the finances or the decisions about the finances of the business, then yes, they would be considered a beneficial owner or have substantial control and they would need to report them.

Jennifer Sklar:

I agree.

Sarah Adkisson:

But I don't know if anyone disagrees.

Jennifer Sklar:

I think it's the activities and their obligations and responsibilities of the person and not necessarily the title. We just assume that C-suite members have that authority. But you could have, again, like Sarah mentioned when she was talking about it doesn't even have to... Title doesn't matter. It could be somebody that used to be the CEO. It could be somebody that's just advising the company on a ad hoc basis and has a significant amount of influence. So there's a lot to take into consideration.

Jeffrey Kelson:

Somebody asked if you have to file each year if there's no changes. No. No changes, you don't have to file. But if there's changes to ownership, significant 25% or more or control, yes.

Sarah Adkisson:

We are about to go over.

Jeffrey Kelson:

Yeah. We're up against the hour.

Sarah Adkisson:

Yeah, we're out of time here. Yeah.

Jennifer Sklar:

We tried to get through the 300 plus.

Jeffrey Kelson:

315 questions, so we're happy. Appreciate you engaged. We know this is a burden, we understand and hopefully we shed some light on what's going on and also updated on the case. And we'll send out communications as we get more information about the implications of that case. That was a Friday night thing, so caught us all by surprise over the weekend. But stay tuned. Reach out to your EisnerAmper provider, they can give you the names of the two firms, providers we have identified and they can help you. And if you set up a new company, if the attorneys can do it, that's great. If they can file with FinCEN along with doing everything else they do in filing and setting up a new company, that would be most helpful. Get it done once at the beginning. All right everyone, thank you for your attention and we hope you have a great day. If you have any questions, you know where we live. Thank you Sarah and Jen. Fantastic.

Jennifer Sklar:

Have a great day everyone.

^{Transcribed by Rev.com}