CTA Reporting Requirements Have Begun!

Reporting requirements for affected entities under the Corporate Transparency Act (“CTA”) went into effect January 1, 2024. In our article “Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!,”  we provided detailed information on the CTA’s applicability and reporting requirements. Now that the CTA is in effect and entities must report beneficial ownership, let’s take another look.

The Facts About the CTA

• The CTA is a bipartisan act passed in 2021 by Congress to create a beneficial ownership information reporting requirement because many states, including Missouri, do not have requirements in place to collect beneficial ownership information of certain entities. An estimated 32.6 million entities are affected by the CTA.
• For entities already in existence prior to January 1, 2024, that do not qualify for any of the 23 exemptions available, Beneficial Ownership Interest (“BOI”) Reports are due by December 31, 2024.
• New entities formed in 2024 are subject to a 90-day BOI Report filing deadline (extended from the original 30-day deadline). Entities formed January 1, 2025, or later are subject to a 30-day BOI Report deadline.

How and What Does an Entity File?

• An entity can file its own report – at no cost – on the Financial Crimes Enforcement Network (“FinCEN”) website at https://boiefiling.fincen.gov/fileboir.
• Required information to be filed for an entity includes the legal entity name, any trade names or dbas, the principal place of business address, and all taxpayer-identification numbers issued to the entity.
• Owners of at least 25% of interest in the entity and those with substantial control of the entity must report their legal name (including middle name), home address, date of birth, unique identifying number from an accepted identification document (generally a state-issued driver’s license or passport), name of the state or jurisdiction of the identification document, and an image of the identification document.

Who Has Access to Filed Information?

• FinCEN’s database of entities will not be freely accessible to the public.
• Federal, state, local, and tribal officials, as well as certain foreign officials, may submit a request for information for authorized activities related to national security, intelligence, and law enforcement. If a reporting company consents, certain financial institutions may be granted access in certain circumstances. For more information on access, please visit FinCEN’s website at https://fincen.gov/boi.

Cue the Scammers Continue reading »

What to Do If You Might Have Been Ineligible for the Employee Retention Tax Credit Claim

The COVID-19 Pandemic was cause for many new programs to be created by the U.S. government to keep businesses afloat and employees retained in unprecedented times. One of these programs was the Employee Retention Tax Credit (“ERC”) which incentivized employers to retain employees while business was down. The program was available regardless of the size of the employer and included tax-exempt organizations.

To be eligible for the ERC, employers had to (1) be either fully or partially suspended by government order due to COVID during the calendar quarter or (2) have gross receipts below 50% of the comparable quarter in 2019.

The IRS began sending out letters in December 2023 to more than 20,000 taxpayers who received disallowed ERC claims. Letter 105 C, Claim Disallowed is being sent to a first group of taxpayers because the entities either (1) did not exist during the eligibility period (March 13, 2020, through December 31, 2021), or (2) did not have paid employees during the ERC’s applicable time period (ERC is a credit against qualified wages).

Letter 105 is being sent out to taxpayers prior to payment in an effort by the IRS to help ineligible taxpayers avoid audits, repayments, and penalties. Many employers were encouraged to file ERC claims by “promoters” who received monetary commissions based on approval. Issuance of a disallowance letter prevents promoters from receiving funds to which they are not entitled. Continue reading »

Planning for the Incapacity or Death of a Business Owner

As a business owner, you are used to making plans. You have had to make plans since day one – plans to get your business off the ground, plans to increase inventory, plans to take on employees. . . plans, plans, plans. One plan that some business owners don’t think about until it’s too late is what happens to their business at the death of one of the owners.

Not planning is, in fact, a plan. If no documents are in place to transfer ownership at death, the deceased owner’s probate estate is the recipient of the business interests and the business is tied up in probate court. How can you avoid this happening to your business?

First, check your corporate governance documents. Depending on the type of entity you own, this could be your operating agreement, shareholder agreement, bylaws, or a buy-sell agreement. These documents could outline any restrictions on the transfer of ownership interests. Some of the more common transfer restrictions are to other members or shareholders, revocable trusts, or family members.

Typically, two of the simpler ways to transfer ownership interest in an entity is to assign the interest during the owner’s life to a revocable trust or, alternatively, assign the interest at the death of the owner to the owner’s trust. The terms of the trust can then control where the ownership goes, how it gets to the desired beneficiaries, and who is in charge. Make sure to update operating agreements or bylaws to reflect those changes any time an assignment of ownership occurs. Assignments of ownership interests at death can also be made to other individuals provided the terms of the entity’s operating agreement or bylaws allow for this transfer. Continue reading »

Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!

To help combat money laundering, prevent financing of terrorism and drug and human trafficking, and deter securities fraud among other illicit activities, January 1, 2024, will usher in the new reporting requirements for most small and closely held businesses. Courtesy of the Corporate Transparency Act (CTA) established under the Anti-Money Laundering Act of 2020, companies will be required to disclose beneficial ownership information to the Treasury Department’s Financial Crimes and Enforcement Network (FinCEN).

What does this mean for existing entities?

All domestic corporations, limited liability companies, and other entities created under state law and formed prior to January 1, 2024, will have until December 31, 2024, to report the required information to FinCEN.

Because the CTA aims to garner information on shell companies and entities with no or little operations, it provides 23 exemptions allowing an entity not to report. One such exemption is for operating companies that meet the following requirements: (1) employ more than 20 full-time employees in the U.S., (2) had more than $5,000,000 in gross receipts or sales as reported on the prior year’s IRS Form 1120, and (3) have an operating presence at a physical office in the U.S.

What does this mean for new entities?

New entities created on or after January 1, 2024, will have 30 days from actual notice of creation or after a secretary of state provides public notice of the entity’s creation or registration, whichever is earlier, to file the required reporting information.

Whose information is reported?

Individuals who directly or indirectly exercise substantial control over the entity, senior officials who have substantial control over a company, and individuals who own or control 25% or more of ownership interests are the Beneficial Owners who must disclose required information under the CTA.

What kind of information do Beneficial Owners have to report? Continue reading »