What You Need to Know About Beneficial Ownership Information Reporting | Part 1

In part 1 of this 2-part series, Annie and Roger dive into the complexities of the new Beneficial Ownership Information (BOI) reporting requirements. They discuss who needs to file, key deadlines, and potential risks for tax professionals assisting clients with compliance. The hosts emphasize the importance of understanding the current guidance, primarily based on FAQs, and highlight areas where interpretation could lead to legal complications.

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• (00:00) - Welcome to Federal Tax Updates
• (03:34) - Understanding the FinCEN Reporting Requirements
• (05:11) - Navigating the FAQs and Compliance Challenges
• (09:57) - Filing Requirements and Deadlines
• (23:37) - Who Needs to Report? Identifying Reporting Companies
• (27:33) - Understanding Reporting Company Criteria
• (29:43) - Sole Proprietorships and Reporting Requirements
• (30:59) - Navigating S Corps and HOAs Reporting
• (32:37) - Legal Implications and Attorney Involvement
• (33:59) - Complex Scenarios and Reporting Obligations
• (40:27) - Company Applicant Responsibilities
• (45:46) - Filing Requirements and Updates
• (50:44) - Conclusion and Next Steps

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Creators & Guests

Host

Annie Schwab, CPA

Franchisee Operations Manager at Padgett Business Services

Host

Roger Harris, EA

President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

There may be errors in spelling, grammar, and accuracy in this machine-generated transcript.

Roger Harris: Hello, everybody. It's time for another federal tax update podcast. This is
Roger Harris and I'm joined, as always by Andy Schwab. Andy, how are you doing today?

Annie Schwab: I'm doing pretty good. Glad I'm not live on that tail end of that Florida hurricane, but, um, things are going pretty good right now.

Roger Harris: Yeah. It's been it's been a rough couple of weeks for people in North [00:00:30] Carolina, Georgia, Florida, South Carolina. So our best to them and hopefully everyone is safe and, um, can recover. You can always recover property, but you can't recover yourself. So we hope you're all well. We're Andy and I are going to go back. You've heard us talk about beneficial ownership interest. I don't know how many times. Too many. Yeah. Uh, and you may be sick of hearing about it, but we've kind of all waited, taken as long as we can kind [00:01:00] of wondering, are we going to get changes? Are we going to get a delay? As we sit here today, it's October the 10th, and you guys probably aren't listening to this at least till after October the 15th. So we understand that. But we're running out of time to, uh, make plans and understand what we're going to do to serve our clients, knowing full well that we could go through this entire process, do whatever it is that we do, and based on how many clients we have, [00:01:30] how much effort we put into it. And then after the election, when Congress comes back for their lame duck session, we could get a delay. But you can't wait until December to start doing this and and have it all wrapped up. So by December 31st. So we thought we're actually going to take this podcast and one right after it to get into a little more detail, go back to some of the beginnings, some of the basics, and kind of walk through what you have to do, what [00:02:00] needs to be done, what you need to look out for, what's important so that hopefully after you get a little break after October 15th, you can begin starting to deal with your clients that are, uh, beneficial ownership businesses that have to report. So with that and talk a little bit about what we're going to, how we're going to do that and what we're going to use in terms of, uh, maybe a little more detail, the kind of our guidebook for what our next two [00:02:30] podcasts are going to look like.

Annie Schwab: Exactly. So today we are talking about the benefit beneficial information report. That's through FinCEN. Um, as of today, uh, like Roger said, today is the 10th. Um, we are focusing on the FAQ's that are published out on the FinCEN website. Those have been updated as of October 3rd. So between when you hear us and and what date it is, there could have been additional changes [00:03:00] or updates. And the best part about it is when they they do their FAQs, they put in parentheses at the end when it was either issued or published or updated. So it's kind of easy to see if something's changed and when it and when it changed. But unfortunately it's kind of strange in all honesty. We're so used to talking about, um, tax law that has lots of legislation, court cases, examples, um, additional additional supporting [00:03:30] evidence and documentation and, and all this stuff. But as it relates to, boy, we are pretty much sitting with FAQs and a small I think it's called a small business entity compliance guide. Right. So we don't have a lot to go on. So we're going to today we're going to kind of break up I think it's 59 pages I don't know how many sections. But we're going to break it up sort of into sections and talk about some of the FAQs. This is definitely [00:04:00] not all the FAQs. We can sort of pick some that we thought were most applicable to the small business owner. So that's that's kind of what we're going to do today.

Roger Harris: Yeah. Because I mean we're used to you know, in addition to having more usually in the tax world, we as you said, we have court cases, we have guidance, we have examples. We probably have a friend that's done it before, you know, we don't even have a friend that's done this before with any expertise. So the FAQs, which again, if we were in the tax world, I [00:04:30] don't know that we would do something just based on FAQs. But that's kind of all we have. So as the thing and Annie made a couple of key points and I want to reiterate them, we're not covering them all. So don't think that there may be things, you know, that you need to look at. And as we record this, the most current FAQs are as of October the 3rd, so they could very well issue a clarification or an update or a change. So please, when you listen [00:05:00] to this, make sure that the updates that we're talking about is still the most current that's out there. And again, we're going to talk about things. And I know that probably you're going to have questions. And unfortunately if they're not covered in the FAQs we're not going to have the answers. And we'll talk about particularly in the second podcast. So this is kind of a little tease to be back for that, where it could become dangerous [00:05:30] to to try to guess and speculate on answers unless you can point directly to these FAQs. So, um, we'll get started again. We're going to not touch on all of them. We've this is kind of like, why are we here? How did we get here? What's it for? What about the business? How to fill out forms? The next one, we'll talk a little bit more about the one of the kind of more challenging parts of this is what is a beneficial owner and what is substantial control that will be [00:06:00] in podcast two.

Roger Harris: So you got to come back and listen to that one. You got to come back. And why don't you start us? Let's start with some basics. The way the FAQ is laid out, the first section they have is what they call general questions. So let's talk a little bit about what they address in their general questions. And again we're going to go back and cover some basic stuff you've heard Annie and I talk about before, but we felt like it would be better in this, in these two podcasts to cover everything and not assume that you've listened to an earlier podcast, or that you know anything before [00:06:30] you listen to this podcast. So we're going to try to go back to the beginning. So why don't you kick us off about what they when they're talking about general questions. And this is going to be Annie and I kind of going back and forth and talking to each other. Um, you know how to reach us at the end of a podcast if you have questions. But again, let me caution you that if it's you can probably read the FAQs and know our answer because if it's not in them, we don't know the answer. We don't know it. All right, Andy, let's get started.

Annie Schwab: All right. Well, the of I said I think 59 pages of FAQs broken into sections. The first [00:07:00] section is section A general questions. And the very first question on there a number one is what is beneficial ownership information. So we're starting back at the basics. And basically that information refers to identifying information about the individuals who directly or indirectly own or control a company. One sentence. That's what it says. That's one sentence. That's all you get. Yeah.

Roger Harris: And I guess maybe to. And [00:07:30] I should have covered this in the opening. This is all coming about because of a law that Congress passed a couple of years ago, based on the premise that small business was becoming a resource or a place that People were laundering money through.

Annie Schwab: It's actually 2021. It's been around that long. Yeah.

Roger Harris: Mhm. Um, so they felt like that in large companies, publicly traded companies because you know, dealing with [00:08:00] uh higher income levels, they had information on who the owners were of those large companies. So the smaller companies is where they thought the small businesses that didn't have publicly available information on their owners, that it was a hard place for them to go find these money launderers. So this is all intended to cut down on illicit activity and small businesses. So as we go through this, keep that in mind. Now, we're not here to debate [00:08:30] whether this will work or not because it is the law, but that's what it is. So as Annie goes through these, um, when you hear that that's what we're doing this all for. So when she talks about what is beneficial ownership information, We're looking for who these people might be.

Annie Schwab: And like Roger said, this is not necessarily new, but it is a new filing requirement. And one of the questions in the FAQs is how do companies become aware of this [00:09:00] BOE reporting requirement? Um, and in all honesty, that's part of the real problem. Um, although it was brought up in 2021, I don't know. There's a lot of people out there who still don't know what this is or that they're subject to it. And there I know FinCEN has started an outreach program, and they're they're trying really hard to bring awareness, but I just I don't I don't I don't think it's enough. I think they're going to be a lot of people caught off guard.

Roger Harris: Oh [00:09:30] I agree. I mean, um, I had a meeting with a taxpayer yesterday who has an LLC for her real estate business. She had no idea about this. Nothing. And she probably got a letter from the Secretary of State in her state reminding her of it. So huge lack of of understanding about it. One stat that I heard, and it may have changed slightly, but it was only less than a month ago, was they estimate about 33 [00:10:00] million businesses are subject to this, and as of a few weeks ago, only 5 million had actually done the report. So that's not even close to right now. They may all be like us, waiting as long as they can, seeing what changes, but I don't think that's the reason there's only 5 million. I think there's to the point that you made, Andy. There's a huge lack of awareness. And now it's time, I guess, because we're [00:10:30] we're running out of time as we get into due dates and things such as that. Yeah. We're running out of time to keep waiting to see what happens. So. Right.

Annie Schwab: Um, and that's another one that's like one of the very next FAQs that it says, you know, should my company report this information now? And so there all of a sudden is they're bringing in the the time constraints. You know, when is a report due for example depends on when the entity was created or registered to do business. So now you've [00:11:00] got you know, it's not the same rule for everyone. If you were a company that was in business prior to January of this year, January of 2020 for your initial report is due by January 1st of 2025. So you basically have until the end of the year. So there could be plenty of of companies that are saying, hey, I don't want to start my clock and you'll you'll get to know what that means. Once you file, you're on register and your clock [00:11:30] starts, which affects, if anything changes, how long you have to make a correction or an amendment or something like that. Um, however, I will say for companies that were created and registered in this year. So as of January 1st of 2024, you only had 90 days to file your initial report. And there could be people listening today that are, you know, I registered in February. I didn't know anything about this. Technically, your 90 days are up. You are supposed to go ahead [00:12:00] and and file. So the hard part is one, you know, awareness is hard. But two, if you were before this date, then you get to file. Then if you were after this date, you only have 90 days. Once you file, your clock starts. Once your clock starts, you only have 30 days to make a correction or an update. So it's a little tricky. Um, and, and I'm sure that the news and the articles and all kinds of stuff that [00:12:30] you hear, um, makes it even that more confusing, right? I should say.

Roger Harris: And you got to wonder of those 5 million that have already filed. How many of those were businesses that were formed this year where they didn't have the luxury of waiting out till the end of the year? They had that 90 day window, and presumably and we're going to get into a little more detail about setting up a company. And, you know, when the clock starts ticking and who does what. But presumably you would assume [00:13:00] and hope that the attorney or whoever set up that LLC or that corporation was aware of this and had to do it and did it immediately because they only had 90 days. So you really wonder of that 5 million, how many of them are just new businesses versus ones that, you know, were in business and had to, uh, have till the end of the year? So and we don't know that. I don't know that.

Annie Schwab: I wonder if we'll even ever see stats. You know, it would be nice to kind of get some stats at some point on [00:13:30] who were the ones who filed first. And anyway, who knows, it doesn't really matter. But yeah.

Annie Schwab: The.

Annie Schwab: As of now, those those dates stand. I will say that it is free to do. Um. There is no charge. Uh, I that's the only.

Roger Harris: Good news we've got in it. But it is free.

Annie Schwab: I mean, if they were charging something, I can't imagine what the compliance rate would have been then, but. Yeah. Um, now we're.

Roger Harris: Talking about FinCEN. No, we're not saying those of you in the business wouldn't charge to provide this service.

Annie Schwab: Oh, yes. [00:14:00]

Roger Harris: But if a business wants to go on to the FinCEN website and do this on their own, which they can do, there is no charge at the FinCEN level for the person, whoever that person is completing and submitting that form. We'll talk about what we're doing. We certainly don't think this is a free service we offer to our clients, and you'll understand more about that as we go through it. So but yeah, if they want to go do it. Knock yourself out. Yeah. Go to go to FinCEN and it'll [00:14:30] be right there. Yeah.

Annie Schwab: There's a link on FinCEN. In fact, you can access the form by just going to the website. And, you know, there's a big icon on the right. It says click here and it pulls up a form. There are two options you can do, sort of like the online version or more of like a PDF version. From our experience, I do recommend the online version. Um, but I'll say this a few times today. If you go on there and you complete the form, be sure to make a copy, get a copy, [00:15:00] save a copy, save it in two places because once you leave the website, as of now, we do not see a way to be able to obtain a copy of it. Right? So right. And little tip there.

Roger Harris: Yeah. Now Annie does does we mentioned and we kind of answered this indirectly that the business owner can do it. Is there any requirement that an attorney or CPA or anybody do this form, you know, can they just go out and find anybody they want to to to do it? If they want to help them [00:15:30] do it, they can.

Annie Schwab: Um, there's an FAQ on that and it says, are you required to use required to use attorney, CPA or enrolled agent or other other professional? The answer is no. It says no, period. However, most reporting companies are probably going to seek guidance because it's new, because we'll talk about this later about the penalties associated with it. So I would not be surprised if you are an attorney, a CPA [00:16:00] enrolled agent, that your clients ask for assistance with this.

Roger Harris: Yeah, and that's why we're doing this, as we expect most of our clients, if they become aware of it or if we make them aware of it, they're going to expect us to be the ones helping them with this. The other thing I'm going to read Annie a question, but what I want to couch it before this, these FAQs. Some came originally when FinCEN first put out guidance. The others that have [00:16:30] been added are because people were asking questions. Yeah. And so as crazy as some of these questions might seem or might not make sense to you, hopefully by the time we finish the two podcasts, they will because they were asked enough to make the the FAQ handout. So let me read what is question B9 and see if you understand. Because again, you may not understand why this is even a question. If a third party service provider who is not an attorney submits [00:17:00] a reporting company's beneficial ownership information to FinCEN. That would be someone like us. We're not an attorney. We prepare the form for them. Has that provider engaged in the unauthorized practice of law?

Annie Schwab: You're right. This is a very important question. It is something that has we've seen court cases based on this exact question. Aicpa has come out with opinions, and I will let I will read [00:17:30] you the answer and then we can kind of talk about it. Nothing. Nothing. In the Corporate Transparency Act, regulations prevent a third party who is not an attorney from submitting the form on behalf of the beneficial owner, or otherwise assisting in reporting or submitting. This is the kicker. Whether an action qualifies as an unauthorized practice of law, however, is generally [00:18:00] determined by state law and thus may vary.

Roger Harris: So what does that mean? I mean why I mean why is so clear? Yeah. Why what is what makes this so different in the sense that, uh, we even have to discuss the practice of law here, because I think there has been one state that has and has has gotten into the fact that there are certain things that if we do, could be considered the practice of law. So, [00:18:30] um, we're going to go through a lot of places where this is important. But, Annie, give us a little general idea of why this is even here, and then we'll get into a little more detail as we go through the space. The places where you might be getting close.

Annie Schwab: So there are. And as we get through it, there are some very black and white, um, you know, if you are this or you own as much this percentage, then you're a beneficial [00:19:00] owner. But there's this huge catch all bucket. Um, that basically is if this then maybe that, or it could be this or, you know, if you're assisting in the interpretation of the law, that's what attorneys do. That's the practice of law. That's not what we do. So if you're helping a client decide if a particular person Is a beneficial owner and you're. And it's not cut and dry. [00:19:30] That's where we can get into trouble. Where it could be determined as the practice of law.

Roger Harris: Yeah. Anywhere to Annie's point where. And it's partly because of where we are that we don't have more than FAQs. We don't have clear guidance to answer all of our questions when we are in a position where we're trying to interpret the law, we're trying to decide what was the intent of Congress when they passed this law. Well, that's what attorneys do. That's what [00:20:00] lawyers do. That's not what accountant, CPAs and enrolled agents do. So when we're in the decision making process in the gray area of where we are, and we'll talk when we get to enforcement about what our liability could be with FinCEN versus with the client versus with. Well, I guess those two, more than anything, um, we have to be careful because we just don't have the guidance to make those determinations without us [00:20:30] trying to interpret a law, and that's not what we do. So again, kind of where we are now. Anybody can file the form. That's not a problem. Client can do it. We can do it. But we do have to be very careful to only do it based on known facts or facts that the client has presented to us without our help in interpreting it. And we're going to focus more on that when we get to the beneficial owner. Part of, I think, the second podcast where [00:21:00] we'll also talk about the penalty. So so keep in mind that this practice of law, you're going to hear, if you listen to a lot of podcasts or read a lot of things you've heard this kicked around. That's what it's all about. We're where it's not black and white. And FinCEN, I must say, has has been reluctant to give us more details, which has created this problem to some extent and certainly made it worse. Where? Where we would think an example or a little more information might take it out of the interpretation. They [00:21:30] failed to do that. So they've left us in this conundrum of are we practicing law, which we clearly cannot do?

Annie Schwab: That's true. That is a very big takeaway. And we'll keep repeating it throughout this podcast and, and on the next one as well.

Roger Harris: Okay.

Roger Harris: Let's go to.

Roger Harris: Talk. What is the company.

Annie Schwab: Yep.

Roger Harris: Who has to do this. Yeah.

Annie Schwab: And and the very first question in the reporting company section is what companies [00:22:00] are required to report this information to FinCEN. Right. There are two types.

Roger Harris: Yeah. Who are.

Roger Harris: They.

Annie Schwab: They are domestic reporting companies. So think of your corporations, LLCs, entities that were created by submitting documentation to the Secretary of state or something similar in the United States. So that's your think, LLC, you know, formation with your secretary of state. It also includes number two, [00:22:30] foreign reporting companies that are formed under law of a foreign country. But they've registered to do business in the US by filing a similar document with the secretary of state. So it's domestic and foreign. The the important thing to remember here is filing a formal document with the Secretary of State. And other than that, there's 23 exemptions. We're not going to go through them all, but it's probably not the smaller firms that are [00:23:00] going to have the exemption, I will say. And there are a lot of times where we see like, oh, if you're under X dollars or number of assets or something, employees, anything, then you get, you know, an exemption for the smaller of the firm because it's um, a lot of pressure for them to comply. They don't have as much resources. This is the complete opposite. This is going after the smaller, smaller firms because they don't have an agency that [00:23:30] they're already reporting information to, and it's the larger ones that tend to get the, the, the the exemption.

Roger Harris: Yeah, yeah. This is one of the few laws that target small business doesn't exempt small business. Right now when we talk about reporting companies, this is one area I want to kind of go back and remind you we're not touching all the FAQs when you get into things like tax exempt homeowners. Homeowners associations, Indian tribes, all these other things, that may be something. [00:24:00] There are FAQs to address those. We're not going to get into all of the possibilities here. The basic thing that we need you to understand is if you register with your Secretary of State to form your entity, and you're less than $5 million in annual revenue. I think that you're probably covered. There are statutory exemptions, but to Annie's point, those are usually much larger companies. [00:24:30] Annie. Let's go. I'm going to ask you this question because we get it all the time. One of the exemptions is an accounting firm. So are we exempt?

Annie Schwab: Uh, we are not.

Annie Schwab: There could be accounting firms that have. Was it Sarbanes-Oxley or something that they have registered with? Um, we are not your your mom and pop stores or pageant offices. Um, in general, I would say most tax practitioners [00:25:00] that do tax and accounting payroll services for their clients are not exempt. Right.

Roger Harris: I'm going to guess that most of the people listening to this podcast that have an accounting and tax firm are not exempt, because you're probably not the kind of firm. Again, that's part of the problem when all you have is FAQs. I mean, we could go through the list here and the list looks pretty open. You know, again, accounting firm [00:25:30] investment company or investment advisor, insurance company. You know, a lot of things that so don't just don't just find the exemption and not do some research behind what that exemption means and assume this will be really clear when we get into the penalties if you aren't aware of what they are. Just don't assume that the listing there, um, makes them exempt because there is a little guidance there about what that means. Yeah. Well, any one other thing, we touched on it. One of [00:26:00] the questions, I'll read the question and we've touched on it. But let's let's remind people what we're talking about. Does the activity or revenue of a company determine whether it is a reporting company?

Annie Schwab: The answer in the FAQs says sometimes. Sometimes that's what it says. It says there is an exemption for certain inactive entities. There's another one for a company that reports more than 5 million in gross receipts or sales in the previous previous years. [00:26:30] And then if you fall into one of the 23 categories of the exemptions, um, engaging in just passive activities like holding rental properties, for example, or being unprofitable is not an exemption. No. Um, from BOE filing requirements. And I don't know about you, but when when there's a question and the answer is sometimes or it depends or maybe that doesn't provide a lot of confidence. Right. [00:27:00] Um, in this. So um.

Roger Harris: And that's where the risk comes in. That's where you get into. Now we're back to interpreting in some cases. Now sometimes it depends as followed by a pretty clear Your explanation that you can.

Annie Schwab: Do avenues, but.

Roger Harris: But in most cases, or in a lot of cases in this thing you get it depends or sometimes and then you realize you're into making interpretation. So we're back to the now are we practicing law if we're starting to try to make interpretation. So your your [00:27:30] antenna of awareness should raise anytime it starts with it depends or sometimes or whatever they could use. Um, in light of all this again remember these questions are here because they got asked a lot. They didn't sit down. So let me let me give you a question. C6 uh, I think it is apparent what the answer is, but evidently it was not. So the question is here is a sole proprietorship [00:28:00] a reporting company?

Annie Schwab: Short answer is no. Unless that sole proprietorship think your schedule sees who you know are using their social security number, etc. unless that sole proprietorship registered with the state, the Secretary of State. It's not, um, a document, you know, to get an employer identification number or like a DBA, a fictitious name, um, a professional license, [00:28:30] occupational license, just creating a new entity. You know, those things do not necessarily make a sole proprietorship subject to the reporting requirements.

Roger Harris: But where you can get trapped and I'm guessing why this question is here. We probably all have clients who file schedule C's because they're a single member, LLC. So in that instance, the LLC did get set up by the secretary of state in your state. [00:29:00] So in that instance you do have to report. So don't don't assume that just because they file a schedule C, they don't have to comply with this law. Now they also answer the question as it relates to escorts. I'm not sure why, but what's the answer? Does an escort?

Annie Schwab: Answer is this.

Annie Schwab: Yes. The S Corp, or any that's created or registered with the state to do business would be subject to the reporting requirements unless it meets one [00:29:30] of the 23 exemptions. Et cetera.

Annie Schwab: Et cetera.

Roger Harris: Yeah, we have to. We have to get out of the tax mindset here in terms of are there passthroughs. It's a schedule C it's a this or it's a that. Go back to the basic understanding of is it a reporting company under these rules. And that means did they set themselves up with the uh Secretary of State. And if they did, then they're probably a reporting company, unless again, there's other exemptions. We touched on this, but I want to ask you specifically because it's got one of your favorite starting [00:30:00] points to the answer. Um, our homeowners association reporting companies.

Annie Schwab: It depends.

Roger Harris: Right. Here we go.

Roger Harris: Again.

Annie Schwab: It depends. Right. Because hoes can take different forms, just like with any entity. An HOA was not created by filing a document. Document with the Secretary of State. Then it's not a domestic reporting or company. However, some HOA is recognized by the IRS for certain things like social welfare or [00:30:30] different statuses may qualify. Some may not. And it's kind of this, um, you're going to have to dig deeper into that, into that one. Um.

Roger Harris: Yeah.

Roger Harris: It depends is the right answer. Now, sometimes, you know, it may be apparent, in other cases it may not be in any. And I don't know if we've said this. We did. It's worth repeating anytime. Let me tell you what we're doing at Padgett. If we get into situations where there's questions like it depends or whatever, and [00:31:00] the client as they're going to do keeps pushing for what do you think? What do you think? I don't think you know. I just do. Uh, we're pushing people in any of these instances where interpretation is required to an attorney. Mhm. Uh, because again, it is that potential practice of law issue that could pop up if we're making some sort of determination of something. Uh, just because the client wants us to or because the client [00:31:30] didn't want to pay an attorney or. Well, I understand all that, but I don't want to get sued. And I don't want to have to pay fines for making the wrong interpretation. And I don't think many of our info coverages would cover us if it was deemed that we were practicing law. So Annie and I are being very firm with our offices, that any time the answer is it depends. And it's not a black and white A or B, then it's an attorney's responsibility to make that determination. [00:32:00] And the client then has to go. Be willing to come back and tell you. I talked to my attorney and this is what the attorney told me. So these are the kind of places you can get trapped.

Annie Schwab: Yes you can. And there's some scenarios like we started getting this one, this this next question. C 13 was added later because like some of our clients um, you know, there's questions like, well what happens. Do you have to file this report if you [00:32:30] cease to exist before the reporting requirements went into effect? Um, and and and you start thinking, well, wait, what if I what if I started and stopped in the same year? What if I was only in existence for a month? Like, then you start, like, going down this rabbit hole of what if, then this. And so it does take you. You got to. I'll read it to you and I'll read it slow. But if the company continued to exist as a legal entity for any [00:33:00] period of time On or after January of 2024. Then it is required to report the beneficial ownership, even if it ceased conducting business before then. So if you're if you're legally in existence in 2024, you have a requirement to file, right? If you're created or registered after and then subsequently cease to exist, then it is required to report the beneficial ownership, even [00:33:30] if it cease to exist before its initial report was due. So you kind of have to take a step back, read it very carefully. I do think they've answered in existence cease to exist kind of scenarios. I'm sure there's going to be somebody who's got an odd ball situation, but I feel like the FAQs tried to address that, that issue.

Roger Harris: Yeah, I think because again, you got started in 24, Went [00:34:00] out of business in 24, started before 24, went out of business in 24, started in 24. Went out of business in 24. They've done a pretty good job of addressing all of those things. So but don't try to understand it. Just try to follow it. Because if you understand that what they're if you get hung up in the fact they're creating this database of businesses and people that they're trying to keep from getting away with laundering money and the [00:34:30] business is no longer in existence, why does it matter if you know, what good is that information in the database? But that's not relevant to the law. So don't don't try to apply logic or common sense or whatever you think here. The FAQs are pretty clear. I think they're they're in that section. See they do a really good job, I think, of going through all the possible scenarios that are there. So read them. Take it literally. Don't [00:35:00] try to apply common sense to it. Don't try to figure out, well, that doesn't make sense. That can't be right. This is all we have. So if it says you gotta file, you gotta file.

Annie Schwab: And I will mention and it's another FAQ in there. There is no requirement that you have to file another report or tell FinCEN that the company has ceased to exist. There's there's no requirement. You don't have to tell them that information. [00:35:30] Um, which seems a little odd.

Roger Harris: Doesn't doesn't.

Roger Harris: Make sense. I mean, if the business no longer exists and I never tell you, it's no longer there. This will again. We're not through yet. We got to go through the whole process of updates and things like that. But how do you know if the information in your database is accurate? Because there's nothing to tell you. This business doesn't even exist anymore. Again, that may not make sense. Uh, but that's not the way the rules are currently written. So, um, they do a pretty good [00:36:00] job. I did find one of the questions kind of interesting. Again, I think if you think through it. But I'll read it to Annie and let her respond. Does a does a conversion from one corporate type to another create a new domestic reporting company that must file an initial beneficial ownership information report. So we have a company that filed their initial report and they went from an LLC to a corporation. Now what [00:36:30] do they have to do?

Annie Schwab: It does say depending on the law of the state.

Roger Harris: And there's another depending.

Annie Schwab: There you go. And depending on the type of entity that's going through the conversion, the filing may result in the creation of what's called a new domestic reporting company. And when it does result in a new domestic reporting company, the new company must file its initial beneficial report. So if you create a new entity, then now that has its own filing [00:37:00] requirement. And even if the conversion doesn't create a new reporting entity, um, it may nonetheless still be required to submit a report based on state law.

Roger Harris: Right?

Roger Harris: So again, it's another depends. They do a pretty good job of coming through what I think are the most common. And I'm sure if we asked for input, there's somebody that's got a crazy off the wall scenario that isn't covered. And that's when you send them back to the attorney. But I think they've done a pretty good job of of addressing, [00:37:30] you know, those sorts of things. There's another interesting one there that they reference. Uh, so if a company and you're in Texas, so you do the initial report for somebody in Texas and they open up a second business in Arkansas, they have to do anything.

Annie Schwab: Says no. It says a reporting company does not need to file an additional report in connection with its subsequent filings with other secretaries [00:38:00] of state. So it says, no, we don't have a lot of examples here, but, um, that's what it says.

Roger Harris: Yeah.

Roger Harris: So let's figure out where we are now and then we'll move to another topic. But we you understand now why the law. Well, not why the law is in place, but that the law is in place where what the justification for it is. We've talked about the reporting company. We've helped you understand who the companies are. And we've walked through some of the different scenarios [00:38:30] about starting stopping types of businesses, all sorts of things. So what we want to talk about now, because this could impact some of you and may make you look at kind of the way you're doing certain things. There's something addressed in this legislation called the company applicant. So, Annie, explain to our listeners What is a company applicant as it relates to beneficial ownership?

Annie Schwab: Okay. So two two specific parts here. [00:39:00] Um, there are two types that of of individuals that can qualify as what's called a company applicant. And you'll you'll understand more what that means after I, after I read this. So an individual who directly files the document that creates or registers this company. Okay. So that's probably an attorney. Maybe. Maybe not. Um, and if one or more persons are involved in the filing, who is primarily [00:39:30] responsible for directing or controlling that filing.

Roger Harris: Right.

Annie Schwab: Again, not so clear. Um, but this this I will throw this out there. This is a section in the initial report That only requires its completion if you are created or registered on or after January of 2024. So if you were in existence [00:40:00] prior to the start of this year, this section of the initial report will be grayed out. It's not required. Um, but not all reporting companies have to report their applicants. Basically, you're talking about, you know, the ones on or after 2024. January 1st, 2024.

Roger Harris: Yeah. Where where it could impact some of our listeners is I know a lot of people in the accounting profession set up entities [00:40:30] for their clients, set up LLC, set up corporations. Now, if you do that, you are a company applicant. When you go to the boy report because you assisted in the setting up of that. So now you have to decide whether the risk of being a company applicant But company applicant, if I can say that is worth it for the fee that you're charging for helping with setting that up. Because Annie addressed this just being their accountant [00:41:00] or their lawyer for that matter. Does that make you a company applicant in and of itself?

Annie Schwab: No it doesn't. I'm an accountant, so I like I like this question E3. Um, so it says is my accountant or lawyer considered a company applicant? And it says that it depends on the role in filing the document that creates or registers the company. Um, it could be somebody that works for a business. You know, it says an accountant or lawyer may be a composite company applicant [00:41:30] if they directly filed the document that created. So that's that's pretty blunt right there. That's pretty clear. If you assist in directly filing you may be considered a company applicant.

Roger Harris: Right.

Roger Harris: And why does it matter if you're a company applicant. First of all, once you report yourself, you can never take yourself off. That's another crazy thing. So you could not even have any relationship with that client, and you're still the company applicant and company applicants can be penalized. So. Yeah. Yeah. So there's [00:42:00] now again, not just because you're the company applicant. I mean there's got to be some action behind it. But so the point I think we all have to consider here is if we are helping and assisting clients, forming LLCs, corporations, A do we want to continue to do that in light of the added BOE requirement? And if we are, how much more do I need to charge for that because of the additional, um, liability [00:42:30] or requirements that I'm accepting. So.

Annie Schwab: Right.

Roger Harris: Spend some time studying that.

Annie Schwab: Yep. I will say I think we covered a couple of these that once you're on, you may not be removed and there's no requirement to tell FinCEN that you no longer have a relationship with the reporting company. And as I've read in that sentence just a few minutes ago where it says, uh, you may have primarily [00:43:00] responsible. So one of the one of the two topics, one who creates and files or the individual who primarily is responsible for directing or controlling the filing, that's not well defined. Um, no. They in fact, they added an FAQ later on that said, you know, what makes the individual primarily responsible? And, um, again, not not that clear. Is that such? This is an example how the filing is managed, [00:43:30] what content the document includes, and where or when the filing occurred. Um, and there's there this one they actually provided three scenarios for, for this one. Um, and it's helpful, but not clear. If you look at the three scenarios, there's, you know, it's worth a read the three scenarios. But again, I wouldn't it's not as clear as I would have liked.

Annie Schwab: No, I'll leave it.

Roger Harris: Which is we could say that about everything.

Annie Schwab: Yeah. [00:44:00] I guess at this.

Roger Harris: Point, yeah. Um, as we kind of wrap up this session, let's go through what actually has to be reported again. So we've we've covered everything up, but now what? Well, so what do I actually have to put on this form and, and the form you'll hear FinCEN say this a lot. Well, it only takes 10 or 15 minutes to file the form. Well, that's true if you've got all the information, you've touched, all the bases you've made, you know, you've had the client go get the guidance they need for all the answers. Yeah. It probably only takes 10 or 15 [00:44:30] minutes to put the information on the form itself. But that's not where the risk comes. That's not where the education comes. That's that's it. So but Andy, why don't we go quickly through just. Sure. Because again, I think you can probably guess. But what do we have to actually report on the company?

Annie Schwab: Sure. I mean, the legal name, right. Or any DBA, DBA that it might have a current street address. I will say a P.O. box is not allowed. No. It needs to have a current, um, street [00:45:00] address. The tax identification number needs to be in there. Um, and then for each individual who's a beneficial owner, and we'll discuss that in the next one, that individual's name, date of birth, residential address again. No, no P.O. box and then some sort of identifying number. Just think passport, driver's license, something, something similar to that.

Roger Harris: And that will become more important.

Roger Harris: In.Our next podcast about that whatever that document is that, that you furnish. And [00:45:30] uh, as part of the application, that's probably the most difficult. Well, that's difficult, but you got to upload a copy of some form of identification.

Annie Schwab: The front and back, actually.

Roger Harris: Yeah. So we're going to spend more time on that because, um, it gets into the individual thing. Um, do I have to do this every year?

Annie Schwab: No, it is not an annual report. Um, as we mentioned earlier, it is subject to when you are in existence. [00:46:00] So if you were prior to 2024, your initial report is due at the end of the year and that's it. It sits there until or if there are changes to be made to it. And this is where it also gets tricky because you only have 30 days to make that change. So let's say you file your report, you do it January 1st of 2025. And then something happens, a change. And we'll talk about examples of what changes could be. You're required within 30 days to go update that report. [00:46:30] So you've got updated reports. You've got corrected report. Um, and and the scary part is any change of information. Um, a new name change in ownership. Maybe someone's now appointed CEO. Um, there's a sale of interest or exchange of interest. Um, any of the beneficial owner's name. Address? Let's say you get married, you get a new driver's license, or you lose your driver's license. You have to get a new one. You move. All [00:47:00] of these things are triggers, um, that require you to update your initial form within 30 days.

Roger Harris: And and again, we'll spend some time on our next podcast talking about, particularly when it comes to the beneficial owner, the company changes. I would hope our relationship with the client is such that we would.

Annie Schwab: Still only.

Annie Schwab: 30 days.

Roger Harris: So if you're still only 30 days.

Roger Harris: So what is my business relationship with this client that makes me aware of this and gives me time? Within those 30 [00:47:30] days? It can get really tricky when we're talking about a change in beneficial owner or an information Formation document furnished on a beneficial owner. We'll get into more detail on that, you know, in our next podcast. But but yes, there are updated forms there, corrected forms. There can be a situation where you become exempt.

Annie Schwab: Yeah,

Roger Harris: Or lose your exemption. And the FAQs are pretty good in that in terms of, you know, this moving, let's say I'm at 4.9 million this year, I'm at 5.1. Then I go back to 4.9. [00:48:00] Back to 5.1. You know it's pretty good, but it's going to drive you crazy. But I mean, the FAQs do a pretty good job of of addressing what you have to do. What's what's difficult is the time limit of 30 days to to do these things and not being able to get the information in time to do it. And we'll talk in our next webinar about where that could create practical, real world situations. When people come to us, you [00:48:30] know, and the 30 days have expired, the original setup had expired. Whatever the case may be.

Annie Schwab: And it's kind of crazy. Even if you become exempt, they don't even ask you why. You just mark a box that you're exempt. You say.

Roger Harris: I'm exempt.

Annie Schwab: I'm exempt.

Annie Schwab: And that's it.

Roger Harris: Wouldn't you advise lying? Because when you hear about the penalties, because you're going to hear us talk a lot about it in the next podcast on willful, I think just lying is willful.

Annie Schwab: So yeah, that that I would that I would agree with. But all right. Um, yes. Well, [00:49:00] we have filled our time today with some really good information. Hopefully you found this helpful as well. Um, as a just a recap, just it's really important to communicate to your clients and for you to stay in the know. Something could change before a year end. You know, anything can happen, I guess. Um, and if you're, you know, I do caution you if you're thinking about performing services for your clients related to this, check your insurance coverage, make sure you're using engagement letters. Really think about how much you want to charge for such [00:49:30] services because there's definitely risks involved.

Roger Harris: And you're going to learn more about that when you join us on our next federal Tax Update podcast, when we'll talk about the beneficial owners, the enforcement, the penalties, and the things that that make this maybe more difficult than it should be. So, uh, that's it for today, Annie. Thank you, as always.

Annie Schwab: Thank you.

Roger Harris: Thank you for listening. Hopefully we got you hooked, that you'll be back for our next one, which will be part two of the beneficial ownership [00:50:00] rules. And, um, maybe by the time you finish this one, the next one will be available and you can go straight into it. So join us for the podcast too. Thank you for joining the Federal Tax Update podcast today. Tell your friends about it if you like it, and we will be back soon with our next federal Tax Update podcast. Bye everybody.