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Author: Cath Ariola

Do I Need to Report My Lawyer As a Company Applicant on My BOI Report?

Posted on by Cath Ariola

Do I Report My Lawyer as a Company Applicant?

The evolving landscape of business regulation has recently brought heightened scrutiny to company formation processes with the requirement to report certain individuals to the government – “company applicants” – who are instrumental in the creation of business entities.

Lawyers, more often than not, play this pivotal role, and understanding when and why they need to be reported is essential for ensuring compliance with the Corporate Transparency Act (CTA).

Who is a Company Applicant?

Reporting company applicants to the Financial Crimes Enforcement Network (FinCEN) is mandated under the CTA for any new entities formed in 2024 and on. These individuals will be reported on the Beneficial Ownership Information Reports (BOIRs) of any entities that they assist in the formation of.

This reporting rule is part of broader efforts to increase transparency within the corporate sector, helping to prevent the misuse of companies for illicit activities such as money laundering, tax evasion, and financing of terrorism.

A company applicant is someone who files the necessary legal documents to form a business entity, such as the articles of incorporation or organization. It also includes those that are in charge of directing the filing with the state. Take this example:

An attorney directs a paralegal at their firm to file executed formation documents with the state. The paralegal is a company applicant because they directly submitted the documents. The attorney is also a company applicant because they directed the submission of said documents. 

These individuals could be anyone – attorney’s, accountant, business owners themselves, or a corporate service provider. The rule ensures that the identities of these key individuals are documented and made available to regulatory authorities, thereby enhancing the overall accountability of business practices.

Why Might FinCEN Request That Company Applicants be Submitted?

Essentially, requiring the disclosure of individuals involved in the formation of a business serves as a vital tool in the fight against financial crime. Here’s why:

  1. Enhancing Transparency: BOI Reporting ensures that the individuals who create business entities are known to authorities. They may be able to connect company applicants to multiple entities that are involved in illicit activities.
  2. Vetting of Bad Actors by Lawyers: By submitting themselves to the federal government in connection with entities that they may never have future involvement, may cause lawyers to be more careful about which clients they engage with for entity formation. Ultimately, making it harder for bad actors to form entities.
  3. Point of Contact: It is not definite that company applicants will face any legal ramifications for forming entities that are later engaged in illicit activities. By reporting a non-owner, authorities will have an extra point of contact to help in locating business owners if needed.

Common Examples of Reportable Company Applicants

  • A lawyer who drafts and files the articles of incorporation for a new LLC.
  • An accountant who directs a business owner where to file their documents online.
  • A corporate service provider that completes and files all formation documents for a new startup.
  • Users of online automated formation services (LegalZoom, Rocket Lawyer, etc.)
  • A business owner that drafts and files articles of organization in their jurisdiction.

What Entities Don’t Need to Report a Company Applicant?

While reporting company applicants applies to newly formed entities in 2024 and on, entities formed before January 1, 2024 do not need to report any company applicants on their BOI Reports due by January 1, 2025.

Details From FinCEN FAQs: Help for Beneficial Ownership Reporting

Posted on by Cath Ariola

In the evolving landscape of financial compliance, staying updated with the latest regulations and requirements is crucial. The Corporate Transparency Act (CTA) and FinCEN’s Beneficial Ownership Information (BOI) reporting are no exceptions. 

As new FAQs become available, they provide invaluable insights that can help businesses navigate these complex waters more effectively.

Understanding FinCEN FAQs: Why They Matter

FinCEN’s FAQ page (Frequently Asked Questions) is a reliable resource that clarifies regulatory requirements, addresses common concerns, and provides practical guidance. FinCEN does not update its FAQs on a particular schedule, but whenever they do, the added information always contains interpretations and best practices related to BOI reporting. 

For reporting companies, these updates are not just informational but also instrumental in ensuring compliance and avoiding penalties.

Key Insights from Recent FAQs

  1. Clarifying Reporting Obligations: The FAQs shed light on which entities are required to report their BOI, including detailed explanations about exemptions and specific scenarios that determine whether an entity must file. Understanding the foundations of the reporting regulation is critical for accurate reporting.
  2. Detailed Reporting Requirements: FAQs break down the specifics of what needs to be reported. This includes the type of information required, how to gather it, and the formats in which it should be submitted. Detailed guidance on beneficial owners, control persons, and the information that must be disclosed helps businesses ensure they are collecting and reporting the right data.
  3. Handling Dissolved Entities: One of the recent FAQs addressed how to handle entities that are fully dissolved. The FAQ clarified that entities not fully dissolved – irrevocably and permanently – may still have reporting obligations, depending on their state laws and activities. This guidance is crucial for businesses that were wrapped-up in 2024.
  4. BOI Database Security and Access: Ensuring the security and confidentiality of reported information is a top concern for the government. The FAQs explain which authorized users will be able to access the BOI database and provide best practices for protecting any sensitive data distributed from FinCEN, including encryption, access controls, and meeting requirements.
  5. Penalties and Enforcement: Understanding the consequences of non-compliance is essential for all involved in the CTA reporting process. FinCEN FAQs detail the penalties for failing to report or providing inaccurate information. This includes fines, legal actions, and other enforcement measures. Awareness of these penalties underscores the importance of diligent compliance efforts.

How to Stay Updated!

Given the dynamic nature of regulatory requirements, it’s important for businesses to stay informed about the latest FAQs and updates from FinCEN. 

Here are a few strategies:

  1. Regularly Review FinCEN’s Website: FinCEN’s website is the primary source for official updates and FAQs. Regularly checking the site ensures that you have the most current information.
  2. Subscribe to FinCEN Updates: If you subscribe to FinCEN Updates here, you will be notified of all News Releases, including when updates are made to the BOI FAQs.
  3. Partner with Compliance Experts: Working with compliance professionals, such as CPAs and attorneys, can provide additional insights and interpretations of new FAQs. These experts can help you implement the guidance effectively.

Navigating the complexities of BOI reporting under the CTA can be challenging, but staying updated with the latest FAQs can make a significant difference. By understanding and implementing the guidance provided in these FAQs, businesses can ensure compliance, protect their data, and avoid penalties.

As new FAQs become available, make it a priority to dig into the details and adapt your compliance strategies accordingly. This proactive approach will help your business stay ahead in the ever-evolving regulatory landscape.

How to Handle Inactive Entities That Aren’t Fully “Dissolved”

Posted on by Cath Ariola

How to Handle Inactive Entities: An Overview

In the ever-evolving landscape of business compliance, navigating the requirements for Beneficial Ownership Information (BOI) reporting can be complex, especially when dealing with entities that are not “fully” dissolved. One FAQ from July 2024 sheds light on how to handle inactive entities.

When a business is listed as inactive at the Secretary of State but has not been formally and irrevocably dissolved, it often raises questions about ongoing compliance obligations. 

Does such an entity still need to report its beneficial ownership information under the Corporate Transparency Act (CTA)? The answer, according to FinCEN’s latest guidance, is nuanced and depends on specific circumstances.

Understanding Dissolved Status

First, it’s essential to understand what FinCEN means when they refer to dissolved entities that do not fall under CTA obligations. A company is dissolved when it ceases to exist by completing the process of formally and irrevocably dissolving with its jurisdiction.

Generally, this includes:

  • Filing dissolution paperwork with its jurisdiction of creation or registration,
  • Receiving written confirmation of dissolution,
  • Paying related taxes or fees,
  • Ceasing to conduct any business,
  • Winding up its affairs (e.g., fully liquidating itself and closing all bank accounts).

While certain entities may not be conducting business, or fail to file their required annual report, they still exist in a legal sense until they are formally dissolved and must comply with the CTA. It is important to assess by jurisdiction as states require different actions for permanent dissolution. 

Steps for Compliance

For businesses that find themselves in the situation, for example, where they are administratively dissolved and required to report, the following steps are essential to ensure compliance with BOI reporting requirements:

  1. Review Your Entity’s Status: Verify with a state attorney whether your entity is classified as permanently dissolved or not. This can also be done through the Secretary of State’s office where your business is registered.
  2. Prepare Beneficial Ownership Information: Gather necessary information about your entity and its beneficial owners. This includes details such as names, addresses, DOB, and ID details.
  3. Submit Required Reports: Use the appropriate forms and procedures to submit your beneficial ownership information to FinCEN. Ensure that you meet all deadlines to avoid potential penalties.
  4. Consider Formal Dissolution: If your entity is truly no longer in use and you wish to avoid ongoing compliance obligations, consider formally dissolving it. This involves completing the dissolution process with the Secretary of State, which legally terminates the entity’s existence.

Importance of Staying Informed

Understanding and adhering to these requirements is essential for maintaining compliance and avoiding potential fines. It’s important to stay up to date with FinCEN guidance since many questions get raised about reporting, including those about what it means for dissolved entities.

By taking proactive steps to review your entity’s status, prepare the necessary information, and submit reports on time, you can ensure that your business meets all regulatory obligations.

How Can I Address the Most Common Challenges in FinCEN Reporting?

Posted on by Cath Ariola

FinCEN (Financial Crimes Enforcement Network) BOI reporting plays a crucial role in maintaining financial transparency and combating financial crimes. However, businesses often encounter challenges when preparing and submitting their reports. 

Understanding these common challenges and knowing how to address them can help ensure compliance and avoid penalties. This blog explores some of the most common challenges in FinCEN reporting and offers practical solutions to overcome them.

Understanding Complex Regulations

Challenge: FinCEN regulations can be complex. Businesses may struggle to keep up with regulations as it pertains to their entity, leading to confusion, and potentially non-compliance.

Solution: Stay informed about the latest regulatory changes by subscribing to FinCEN updates and industry newsletters. Consulting with legal and compliance experts can also provide clarity on intricate regulations.

Accurate Beneficial Ownership Information (BOI) Reporting

Challenge: Accurately reporting beneficial ownership information can be challenging, especially for companies with complex ownership structures or numerous owners.

Solution: Implement a thorough data collection process to ensure all relevant information is gathered. Utilize advanced software solutions to automate data collection, access broken down regulations, and other tools that make reporting easier.

Gathering and Verifying Required Documentation

Challenge: Collecting and verifying the necessary documentation for FinCEN reports can be time-consuming and cumbersome. Missing or incorrect documentation can lead to delays and compliance issues.

Solution: Develop a streamlined process for collecting and verifying documentation. Create checklists to ensure that all necessary information is collected and verified before submission.

Managing Deadlines and Reporting Timeliness

Challenge: Meeting FinCEN reporting deadlines can be stressful, especially for businesses with multiple regulatory requirements and tight schedules.

Solution: Establish a clear reporting calendar with deadlines for each reporting task. Use project management tools to track progress and set reminders for upcoming deadlines. Consider automating reminders and workflows to ensure timely completion of all reporting requirements.

Addressing System Integration Challenges

Challenge: Integrating FinCEN reporting requirements with existing financial systems and software can be complex and may lead to data discrepancies.

Solution: Work with IT and software vendors to ensure smooth integration and address any compatibility issues. Regularly test and update your systems to ensure they are functioning correctly and they fit well with your existing processes.

Navigating Cross-Border Reporting Requirements

Challenge: For businesses operating internationally, navigating cross-border reporting requirements and ensuring compliance with both U.S. and foreign regulations can be challenging.

Solution: Stay informed about international compliance requirements and collaborate with legal and compliance experts who have experience in cross-border regulations.

Tackling Challenges in FinCEN Reporting Puts You A Step Ahead

FinCEN reporting is an essential aspect of federal compliance, but it comes with its own set of challenges. By understanding these challenges in FinCEN reporting and implementing effective strategies to overcome them, businesses can ensure accurate and timely reporting.

Leveraging technology, staying informed, and maintaining a strong compliance framework are key to navigating the complexities of FinCEN reporting and achieving regulatory success.

Is Your BOI Company Applicant Included in Your BOI Report?

Posted on by Cath Ariola

When it comes to completing Beneficial Ownership Information (BOI) reports for entities formed on or after January 1, 2024, a common oversight is the inclusion of the BOI company applicant. In this blog, we’ll delve into why reporting the company applicant is essential, how to ensure it’s not overlooked, and the role of legal and financial professionals in streamlining this task.

Understanding the Role of the BOI Company Applicant

Under the Corporate Transparency Act (CTA), a company applicant is an individual that is responsible for filing and managing the filings of the necessary documentation to establish a new business entity. 

This role can often be filled by a lawyer, accountant, or another professional advisor who assists in the formation process. Business owners may also be company applicants.

Why is the BOI Company Applicant Important?

  1. Regulatory Compliance: Including the company applicant in the BOI report ensures full compliance with the Corporate Transparency Act (CTA). This act mandates that all entities disclose their beneficial owners and the individuals who aided in forming the company. Proper reporting helps avoid penalties and maintains transparency.
  2. Accurate Representation: The company applicant’s inclusion may provide a complete picture of the entity after its formation. It identifies the person or entity who managed the creation process, which is important to the relevant regulatory authorities.
  3. Accountability: The Financial Crimes Enforcement Network (FinCEN), the regulatory body collecting BOI reports, may want to collect the identity of the company applicants if any questions or issues arise regarding the business’s purpose of formation.

Common Oversights (and How to Avoid Them)

Despite the importance of reporting the company applicant, it’s a step that is easily overlooked. This oversight can lead to incomplete reports and potential non-compliance. Here’s how to ensure this step is not missed:

  1. Standardized Processes: Implement a standardized procedure for new entity creation that includes a checklist for all required filings – including that under the CTA. Ensure that recording the individuals who may be company applicants is a step in your process.
  2. Clear Communication: Legal and financial professionals should clearly communicate the need to include themselves as a company applicant when advising clients to file their BOI reports for their new entity. Make sure to ask your professional who from their organization needs to be on the report.
  3. Double-Check Submissions: Before finalizing and submitting the BOI report, double-check that all required information, including the company applicant’s details, is included. Implementing a review process can help catch any missed details.

The Role of Professionals in Ensuring Accurate Reporting

Lawyers, accountants, and other professionals play a pivotal role in ensuring that all aspects of the business formation and compliance process are handled correctly. Here’s how they can assist:

  1. Guidance and Reminders: Professionals should provide clients with clear guidance on their reporting obligations, including the need to include the company applicant. They can also remind clients of these requirements as part of their service.
  2. Standard Procedures: Incorporate the requirement to report the company applicant into standard new entity creation procedures. This helps ensure that no steps are missed and that clients are aware of their responsibilities.
  3. Regular Updates: Keep clients informed about any changes in reporting requirements or best practices. Regular updates help maintain compliance and reduce the risk of overlooking critical steps.

Accurate and complete reporting of the company applicant in Beneficial Ownership Information reports is crucial for regulatory compliance and transparency. By understanding the importance of this role and implementing measures to ensure it is not overlooked, businesses and professionals can maintain adherence to the Corporate Transparency Act and avoid potential issues.

To ensure you’re meeting all compliance requirements, consider consulting with a professional who can guide you through the process and help integrate these steps into your routine practices. Properly reporting the company applicant is not just a regulatory requirement—it’s a key element of maintaining transparent and accountable business operations.

Special Reporting Considerations for Tax-Disregarded Entities

Posted on by Cath Ariola

When it comes to complying with FinCEN’s Beneficial Ownership Information (BOI) reporting requirements, understanding the specific taxpayer identification numbers (TINs) that need to be reported can be challenging, especially for disregarded entities. So, what are the reporting considerations for tax-disregarded entities? Disregarded entities, often structured for tax efficiency, still bear the responsibility of reporting their beneficial ownership information if they meet the criteria of a reporting company.

This article will cover the types of TINs that disregarded entities should report to FinCEN.

What is a Disregarded Entity?

A disregarded entity is a business entity with a single owner that is not considered as separate from its owner for federal tax purposes. Common examples include single-member limited liability companies (LLCs) and certain types of trusts. Despite their special tax status, disregarded entities are not by default exempt from BOI reporting requirements, even if they may not be required to file any income tax returns.

TINs for Disregarded Entities

FinCEN requires reporting companies to submit their taxpayer identification number (TIN) if one has been issued, as part of their BOI report. The applicable TINs that may be reported include:

  • Employer Identification Number (EIN)
  • Social Security Number (SSN)
  • Individual Taxpayer Identification Number (ITIN)

Special Foreign Entity Rule 

For foreign reporting companies that have not been issued a TIN, they must provide a tax identification number issued by a foreign jurisdiction along with the name of that jurisdiction.

Reporting Considerations for Tax-Disregarded Entities: Scenarios

Let’s explore several scenarios to understand which TIN should be reported:

  • Disregarded Entity with its Own EIN 

If the disregarded entity has an EIN, it can report this number as its own TIN. This is straightforward and aligns the entity’s reporting with its federal tax identification.

  • Disregarded Entity Without EIN – Owned by an Individual 

For a single-member LLC or other disregarded entity with only one owner who is an individual, the entity may report the owner’s SSN or ITIN. The downside of this approach is that it reports a sensitive SSN on the BOI report. 

  • Planning Point 

Consider having a disregarded entity obtain an EIN prior to filing the BOI report, if not previously on file. This will eliminate the owner’s SSN from being reported on the company’s BOI report.

  • Disregarded Entity Without EIN – Owned by a U.S. Entity 

If a disregarded entity is owned by a U.S. entity with an EIN, the disregarded entity can report its’ owner’s EIN as the TIN on its BOI report. 

  • Chain of Disregarded Entities Without EIN

In cases where a disregarded entity is part of a chain of disregarded entities that don’t have an EIN, it can report the TIN of the first owner up the ownership chain that has its own TIN. 

Compliance is Key

Understanding the proper TIN to report is crucial for compliance with FinCEN’s BOI requirements. Disregarded entities must carefully assess their structure and identify the appropriate TIN to ensure accurate reporting. Failure to comply can result in significant penalties and increased scrutiny from regulatory authorities.

Conclusion

Navigating the BOI reporting requirements can be complex, especially for disregarded entities. However, by understanding the types of TINs that can be reported and the specific scenarios that apply, these entities can fulfill their reporting obligations with confidence. Whether using an EIN, SSN, ITIN, or a foreign-issued tax identification number, accurate reporting is paramount in maintaining compliance and supporting the broader goals of financial transparency and accountability.