BOI Reports

Beneficial Ownership Information Reporting: Updates and Corrections

January 22, 2024 by Kim & Rosado LLP

Understanding Beneficial Ownership Information Reports

Beneficial Ownership Information Reporting: Updates and Corrections

When to update a beneficial ownership information report: After a reporting company files an initial beneficial ownership report, the reporting company must file an amended report within 30 calendar days after the date on which such change occurs to reflect any change in information previously reported to FinCEN, including any change with respect to who is a beneficial owner or information reporting for any particularly beneficial owner.
When to correct a beneficial ownership information report: If a reporting company files an initial beneficial ownership report or any subsequent amendment and determines that either report was inaccurate when filed and remains inaccurate the reporting company must file a corrected report within 30 calendar days after the date on which the reporting company becomes aware of or has reason to know if the inaccuracy.

Understanding the Need for Updated Beneficial Ownership Information Reports

When to File an Updated Report: Reporting companies are required to file updated beneficial ownership information reports within 30 days of any change in their beneficial ownership information. Updated reports are required if there are any changes to reported information about the reporting company or its beneficial owners. Remember, required information on a beneficial ownership information report includes, in part, a reporting company’s name and address and a beneficial owner’s name, address, and identifying number from an acceptable identification form. Any change to any of these items can trigger the legal obligation to file an updated beneficial ownership information report. Reporting companies are not required to provide updated information about company applicants.

Action Steps for Reporting Companies:

Identify Changes: Regularly review your company’s beneficial ownership structure to identify any changes that may trigger the need for an updated beneficial ownership information report.
Gather Information: Require all beneficial owners to always update their beneficial ownership information, ensuring accuracy in names, addresses, and unique identifying numbers.
File Promptly: Prepare and submit the updated beneficial ownership information report within the 30-day window to avoid noncompliance.

Addressing the Need for Corrected Beneficial Ownership Information Reports

When to File a Corrected Report: In the event that a reporting company discovers an error or omission in a previously filed beneficial ownership information report, a corrected report must be filed within 30 days. This ensures that the information on record with FinCEN is accurate.

Action Steps for Reporting Companies:

Review and Identify Errors: Conduct thorough reviews of your beneficial ownership information reports to verify the accuracy of the information provided.
Prepare the Correction: Assemble all necessary information to correct any error or omission, ensuring that the new report is complete and precise.
File Without Delay: Submit the corrected beneficial ownership information report promptly to avoid any penalties that FinCEN could impose.

Our Role in Your Reporting Obligations

At Kim & Rosado LLP, we understand that maintaining compliance with evolving regulations can be challenging. Our partners stand ready to assist you in fulfilling your beneficial ownership information reporting obligations with precision and authority.

Should you require assistance in preparing updated or corrected beneficial ownership information reports, or if you have any questions regarding these processes, we invite you to reach out to us. Our direct involvement and hands-on approach ensure that you receive the expert advocacy and support needed to navigate these intricate regulatory requirements.

FinCEN Identifier: A Simplified Compliance Tool

January 21, 2024 by Kim & Rosado LLP

Understanding Beneficial Ownership Information Reports

FinCEN Identifier: A Simplified Compliance Tool

Beginning in 2024, millions of U.S. entities will need to file beneficial ownership information reports. These reports are subject to complicated rules. Recognizing the burdens this new reporting regime imposes, the Corporate Transparency Act created a process to simplify reporting—the FinCEN identifier.

What is the FinCEN Identifier?

The FinCEN identifier is a unique number assigned to reporting companies who file their beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN). The FinCEN identifier is not generated automatically; reporting companies must request it when they submit their beneficial ownership information reports. The FinCEN identifier helps to streamline updated or corrected beneficial ownership information reports. As a consistent reference for subsequent filings, the FinCEN identifier reduces the repetitive submission of data.

Individual Application Process for Beneficial Owners and Company Applicants

Not just for reporting companies, beneficial owners and company applicants can also individually apply for FinCEN identifiers. Once obtained, this identifier can be shared with the reporting company to be used in lieu of detailed personal information typically required in beneficial ownership information reports. The application process is straightforward: individuals must access the Beneficial Ownership Secure System (BOSS) and select the ‘Create a FinCEN ID (optional)’ option. Applicants must include the same information as would have to be provided on a beneficial ownership information report: full legal name, date of birth, residential address, a unique identifying number from an acceptable identification document, and an image of that identification document. After submitting that information, FinCEN will provide the applicant’s unique FinCEN identifier.

Protecting Personal Information

The FinCEN identifier serves a dual purpose: streamlining compliance and securing privacy. With a singular, reusable identifier, there is less need to distribute sensitive information repeatedly. For individuals involved with multiple entities, this is advantageous, as it allows for a single identifier to be employed across various reports and filings, enhancing both security and convenience.

The Ongoing Obligation to Update Beneficial Ownership Information

A reporting company is obligated to update a beneficial ownership information report within 30 days after a change to any beneficial ownership information. A reporting company is also obligated to correct a beneficial ownership information report within 30 days of discovering that there is incorrect information on a previously-filed beneficial ownership report. When an individual beneficial owner obtains a FinCEN identifier, the reporting company can use that identifier instead of providing the required beneficial ownership information. But by obtaining a FinCEN identifier, the individual rather than the reporting company becomes responsible for updating or correcting that owner’s beneficial ownership information. The individual must update or correct any information previously submitted to FinCEN in the application for the FinCEN identifier within 30 days after the date on which any change occurs or error is discovered.

Remember, the required information about a beneficial owner on a beneficial ownership report includes the beneficial owner’s full legal name, date of birth, residential address, a unique identifying number from an acceptable identification document, and an image of that identification document. If any of those items change, the beneficial owner who obtained the FinCEN identifier is responsible for updating that information. Similarly, if any of those items were entered incorrectly on the application for the FinCEN identifier, the beneficial owner must make a correction.

Electronic Submission Through BOSS

Obtaining a FinCEN identifier must be done electronically via FinCEN’s secure filing system, BOSS. This is FinCEN’s electronic filing system implemented to collect and maintain beneficial ownership information. A reporting company can obtain a FinCEN identifier while electronically filing a beneficial ownership information report through BOSS. And the BOSS system allows individuals to apply for and receive a FinCEN Identifier that they can supply to the reporting companies with which they have filing obligations – whether that is as a beneficial owner or a company applicant.

Kim & Rosado LLP: Your Compliance Partners

At Kim & Rosado LLP, our experienced partners are equipped to help you understand these new procedures and integrate them into your existing compliance framework. For assistance in obtaining your FinCEN identifier or for any questions about the BOI reporting process, please reach out to us. We are here to provide the guidance you need.

By the Numbers: The Corporate Transparency Act and the Probable Impact to IRS Global High Wealth Taxpayer Audits Beginning in 2024

January 17, 2024 by Kim & Rosado LLP

Back in 2009, the IRS formed the Global High Wealth (GHW) unit focusing on taxpayers who had elevated income and a complexity in their financials that warranted a “holistic approach.” From 2009 through 2022, our seasoned partner Tony Kim served as one of five IRS attorneys working to support this new unit. He found that understanding how a web of partnerships, domestic and foreign trusts, offshore accounts and corporations linked to reveal a GHW taxpayer’s true taxable income was no easy task. But, the IRS first had to find these dots to connect them.

The IRS’s Data Book shows that the agency struggled with GHW audits. IRS Data Book Table 17. As of fiscal year 2010, 13,322 tax returns were filed by taxpayers who had total positive income of $10,000,000 or more – that’s the range to fall within this GHW population. IRM 4.52.1.2. From that number, 21.5% of the returns were audited with an average recommended adjustment of $610,397. Fast forward to fiscal year 2019, where the number of GHW tax returns filed grew to 24,457, resulting in just 10.2% audit coverage with an average recommended adjustment of $49,805. If the GHW division was a stock, we’d probably sell and take a loss. Before we do, let’s look under the hood for a moment.

In building a GHW case, the IRS prepares a review a “yK-1 analysis” for each taxpayer to gain an overview of the taxpayer enterprise that includes the taxpayer’s Form 1040 and all related entities. From this interactive link analysis of the GHW taxpayer and all of their web of entities, the IRS could then review the entire enterprise and consider how to build the case. IRM 4.52.1.1.5(1); IRM 4.52.1.3. The trouble with building this yK-1 analysis is that the IRS needs information on a GHW taxpayer’s web of entities. And, a GHW taxpayer’s ownership information in various entities is elusive.

The GHW unit’s audit results may increase dramatically in the coming years due to the recently enacted Corporate Transparency Act (CTA). Congress added the CTA section, 31 U.S.C. § 5336, to the Bank Secrecy Act to address the broader objectives of beneficial ownership transparency. The CTA requires certain types of domestic and foreign entities, called “reporting companies,” to submit specified beneficial ownership information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, that is charged with safeguarding the U.S. financial system from money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence. All of the information that connects GHW taxpayers to their holdings so critical to a yK-1 analysis will soon become available to the IRS beginning in 2024 when taxpayers are required to file BOI reports with FinCEN. The CTA provides, “[b]eneficial ownership information shall be accessible for inspection or disclosure to officers and employees of the Department of the Treasury . . . .” Couple the CTA with the additional funding provided by Congress in the Inflation Reduction Act that will lead to the hiring of more revenue agents and you have the stage set for quite a dramatic change to the landscape of GHW taxpayer audits beginning in 2024.

Conclusion

The IRS is becoming a data-centric organization. By mining ever greater sources of data, the IRS can more effectively select taxpayers for audit. And the adjustments resulting from those audits will be larger. The new beneficial ownership information reports are a source of valuable information for the IRS. The IRS is likely to use information gleaned from beneficial ownership information reports to select and prosecute audits. Experienced counsel can help you navigate both IRS audits and the new beneficial ownership information reporting requirements.

The High Stakes Of Transparency: Navigating Beneficial Ownership Information Reporting Penalties

January 17, 2024 by Kim & Rosado LLP

Understanding Beneficial Ownership Information Reports

The High Stakes Of Transparency: Navigating Beneficial Ownership Information Reporting Penalties

In the pursuit of greater entity ownership transparency, the federal government has implemented stringent new reporting requirements. The Corporate Transparency Act requires most entities in the United States to file beneficial ownership information reports with the Financial Crimes Enforcement Network (FinCEN). These new filing requirements aim to peel back the layers of anonymity that can shield illegal activities, such as tax evasion, within business entities. Beneficial ownership information reports, as the name implies, require the disclosure of all beneficial owners of an entity.

The Corporate Transparency Act relies on entities themselves to self-report – entities must file beneficial ownership information reports voluntarily. To compel entities to comply with beneficial ownership information reporting, the Corporate Transparency Act penalizes noncompliance. The penalties for noncompliance can be severe. Companies navigating this new regulatory environment must understand the potential penalties for failing to file or failing to file correct beneficial ownership information reports.

Why Penalties Are Imposed

FinCEN would be unable to collect beneficial ownership information itself. The identities of beneficial owners are not currently maintained by most, if any, states that license entities. Instead, FinCEN must rely on U.S. entities themselves to voluntarily provide beneficial ownership information. The Corporate Transparency Act therefore requires entities to self-report their beneficial owners. As with the U.S. tax-reporting system, while voluntary, the beneficial ownership information reporting system is backed up by stiff penalties. Penalties for failing to comply with beneficial ownership information reporting are designed to ensure that entities are transparent about their beneficial owners. The imposition of penalties seeks to deter noncompliance with the beneficial ownership information reporting requirements.

Quantifying Non-Compliance Risks

The Corporate Transparency Act penalizes willful noncompliance. Willfully providing, or attempting to provide, false beneficial ownership information to FinCEN is subject to severe penalties. Similarly, willfully failing to file complete or updated beneficial ownership information can subject you and your entity to penalties. The potential penalties include:

Civil Penalties: Noncompliance can result in civil monetary penalties up to $500 for each day the violation continues or has not been remedied, reflecting the ongoing nature of beneficial ownership information reporting.
Criminal Penalties: Individuals who intentionally disregard or falsify beneficial ownership information reports may face fines of up to $10,000 and/or imprisonment for up to two years.
Reputational Damage: The intangible yet very real consequences of reputational damage can have long-lasting effects on your business.

Proactive Measures to Safeguard Your Business

To mitigate these risks, entities must take a proactive stance, which includes staying informed of regulatory updates, implementing robust procedures for accurate reporting, and seeking expert guidance to navigate the complexities of compliance.

Conclusion

At Kim & Rosado LLP, we specialize in steering our clients clear of the pitfalls of noncompliance. Our former advisory roles within the Department of Treasury equip us to provide you with the guidance necessary to navigate these regulations and implement effective compliance strategies. We are dedicated to working directly with you, ensuring that your business not only meets its legal obligations but also upholds the highest standards of corporate responsibility and ethics.

If you have concerns about your compliance status, we encourage you to contact us. Let our expertise guide you through the intricacies of beneficial ownership information reporting and beyond.

Who Is A Company Applicant Under The Corporate Transparency Act?

January 14, 2024 by Kim & Rosado LLP

Understanding Beneficial Ownership Information Reports

Who Is A Company Applicant Under The Corporate Transparency Act?

The Corporate Transparency Act requires most entities to file beneficial ownership information reports with the Financial Crimes Enforcement Network (FinCEN). On that report, entities must disclose their beneficial owners. In addition, entities formed on or after January 1, 2024 must also disclose their “company applicant(s).”

A company applicant is the individual or individuals responsible for filing the foundational documents that breathe life into a legal entity. Whether it’s a corporation, a limited liability company, or a similar entity, the company applicant is the person responsible for the actual registration of the company with the appropriate state authority.

A company applicant might be an attorney, an accountant, or a designated agent specializing in company formation services. It’s also possible for one of the future officers or directors of the company to act in this capacity.

The Company Applicant’s Responsibilities

The responsibilities of a company applicant extend beyond mere paperwork. They are tasked with providing accurate information that will form the backbone of the company’s legal existence. This may include, depending on your state:

The name of the company
Its principal place of business
The names of the initial directors or managers
The registered agent for service of process
Any required information about the company’s purpose and operations

Under the Corporate Transparency Act, the company applicant is also a subject of reporting. Their details must be disclosed as part of the beneficial ownership information report to FinCEN. This measure aims to peel back the layers of anonymity that have historically cloaked the origins of legal entities, making it harder for illicit activities to hide behind corporate structures. It is imperative to understand who is a company applicant under the Corporate Transparency Act.

The Corporate Transparency Act’s Definition of Company Applicant

The Company Applicant is defined as:

Direct Filer: This is the individual who directly files the document that creates a domestic reporting company or the individual who directly files the document that first registers a foreign reporting company. This individual would have actually physically or electronically filed the document with the secretary of state or similar office.
Individual Who Directs or Controls the Filing Action: This is the individual who was primarily responsible for directing or controlling the filing of the creation or first registration document. This individual is considered a company applicant even if they did not actually file the document with the secretary of state or similar office.

It’s important to note that no reporting company will have more than two company applicants. Additionally, only certain reporting companies must include information about their company applicants in their beneficial ownership information reports—specifically reporting companies created or first registered on or after January 1, 2024.

Reporting companies must disclose the following information on their beneficial ownership information reports about their company applicants:

Full legal name
Date of birth
Complete current residential or business street address
A unique identifying number from an acceptable identification document (such as a passport or driver’s license)
An image of the identification document from which the unique identifying number was obtained

The Implications for Your Business

Whether you’re forming a new entity or seeking to comply with the Corporate Transparency Act, our team at Kim & Rosado LLP is here to provide the expert guidance and meticulous attention to detail that your business deserves. We invite you to connect with us, explore our extensive experience, and partner with us in navigating the complexities of business formation and compliance.

The Beneficial Owner Exceptions Under The Corporate Transparency Act

January 13, 2024 by Kim & Rosado LLP

Understanding Beneficial Ownership Information Reports

The Beneficial Owner Exceptions Under The Corporate Transparency Act

The Corporate Transparency Act is designed to reveal the beneficial owners of entities. To accomplish this, the Corporate Transparency Act requires most entities to file beneficial ownership information reports. While other information is required to be disclosed, the beneficial ownership information report’s focus is on identifying beneficial owners.

The concept of a “beneficial owner” is a cornerstone of the Corporate Transparency Act. But certain categories of individuals are excluded from the definition of a beneficial owner. These exclusions help to limit an entity’s reporting obligations.

Key Exceptions to Note

The following are exceptions to the beneficial owner definition that may impact your company’s reporting obligations:

Minor Children: Ownership interests held by minors through a parent or guardian do not make them beneficial owners. This exception requires that the reporting company instead identify the minor child’s parent or guardian.
Nominees and Agents: Individuals acting as nominees or agents for another person are not considered beneficial owners; rather, it is the person on whose behalf they act that must be identified.
Employees: Employees who exercise substantial control over a company solely by virtue of their employment status may be excluded. But this rule does not generally exclude senior officers of a company.
Inheritance: Those who may come into ownership through inheritance are generally excepted from the definition of beneficial owner. But once a beneficial ownership interest is inherited, the inheritor can be considered a beneficial owner.
Creditors: A creditor, despite potential influence over a company, may not be deemed a beneficial owner. This exception is limited – creditors may still qualify as beneficial owners in certain circumstances.

Understanding who may or may not be a beneficial owner is not just a matter of regulatory compliance; it is also a strategic business consideration. Missteps in this area could lead to compliance failures and unnecessary administrative burdens.

Conclusion

Navigating the maze of beneficial ownership exceptions requires a seasoned guide. We invite you to engage with our team, review our credentials, and let our commitment to excellence in action earn your trust. For more detailed information on beneficial ownership exceptions and how they may pertain to your business, please reach out to us.