When setting up a Limited Liability Company (LLC) or other company in a community property state, it’s important to understand the implications for Beneficial Ownership Information (BOI) reporting. Failing to include your spouse as a beneficial owner may lead to compliance issues.
Read on to understand the necessary steps and considerations to ensure that your entities comply with BOI reporting requirements.
Which States Are Community Property States?
Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, most property acquired during the marriage is considered jointly owned by both spouses, regardless of who purchased it. This rule includes newly formed LLCs by a married individual.
The Importance of Including Your Spouse as a Beneficial Owner
The Corporate Transparency Act (CTA) requires entities, including LLCs, to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who directly or indirectly exercise substantial control over the entity or own at least 25% of the ownership interests.
For entities in community property states, both spouses typically have equal ownership over the property. Therefore, if one individual has 25% ownership interest then they must both be reported as beneficial owners. A newly issued FAQ from FinCEN confirmed that community property considerations should not be ignored. The FAQ reads:
“D. 18. If one spouse has an ownership interest in a reporting company, is the other spouse also considered a beneficial owner if the reporting company is created or registered in a community property state?
Possibly. Whether State community property laws affect a beneficial ownership determination will depend upon the specific consequences of applying applicable State law. If, applying community property State law, both spouses own or control at least 25 percent of the ownership interests of a reporting company, then both spouses should be reported to FinCEN as beneficial owners unless an exception applies.”
Given the above FinCEN guidance, neglecting to include your spouse as a beneficial owner can result in non-compliance with BOI reporting requirements, potentially leading to significant fines and penalties. It is highly recommended to consult with an attorney or CTA compliance expert if you are married and live in a community property state.
In the realm of financial transparency and compliance, navigating complex ownership structures in BOI reporting can present significant challenges. This blog raises some ideas and challenges that come with reporting entities that are entangles in these structures.
What Are Complex Ownership Structures in BOI Reporting?
Complex ownership structures often involve multiple layers of entities and individuals, making it difficult to pinpoint the actual beneficial owners. These structures can include:
Holding Companies.
Trusts
Partnerships and Joint Ventures
Essentially, any arrangements where multiple parties are involved, each with varying degrees of control and ownership, can make BOI analysis more complex.
Challenges in Reporting
Reporting complex ownership structures requires careful attention to detail to ensure compliance with BOI requirements. Here are some key challenges:
Identifying the Beneficial Owners: Determining who ultimately controls or benefits from the entity can be difficult.
Entities Under Separate Advisors: Accurate and complete reporting of all beneficial owners through an entity when other advisors will be performing analysis is harder to verify.
Capturing All Entities: Coordination with all parties involved to ensure that every entity is getting reported may take time and increased collaboration.
Best Practices for Accurate Reporting
To navigate these complexities effectively, consider the following best practices:
Conduct Thorough Due Diligence: Perform comprehensive due diligence to identify all beneficial owners and their levels of control. If other advisors are performing analysis in which you will be executing on an official BOI report, be sure to ask them to provide their basis for conclusion. If privacy is a concern and sufficient information to verify the accuracy of the analysis is not provided, gather documentation that shows the information that was willingly provided to you.
Utilize Technology: Leverage technology solutions to streamline data collection, management, and reporting processes. Software can provide tools that will reduce redundant data entry for owners with multiple entities, as well as speed up the update process when one change affects many entities.
Seek Expert Guidance: Consult with legal and compliance experts to ensure accurate interpretation and application of reporting requirements if there is uncertainty.
The Importance of Compliance
Ensuring accurate reporting of complex ownership structures is essential for maintaining compliance with FinCEN regulations. Non-compliance can lead to significant penalties and legal repercussions, making it important to get it right.
Navigating complex ownership structures in BOI reporting requires a strategic approach, attention to detail, and a proactive stance on compliance. By understanding the challenges and following best practices, CPAs and attorneys can manage these structures effectively and ensure they meet their regulatory obligations.
The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, requires certain entities to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). While traditional LLCs have clearer reporting obligations, BOI reporting for series LLCs presents a unique challenge due to their complex structure and lack of guidance from FinCEN. The end of the year is nearing, along with the due date for millions of entities, so professionals may not have the time to wait for further guidance.
Series LLCs Explained
A Series LLC is a special form of LLC that allows for the creation of separate “series” or divisions within a single LLC. Each series can have its own assets, liabilities, and business operations. Importantly, series within an LLC are treated as distinct entities for liability purposes, but how they are recognized for reporting or legal purposes varies by jurisdiction.
In Texas, for instance, a series LLC is either a protected series (formed before June 1, 2022) or registered series (formed on or after June 1, 2022). Protected series do not have specific filing requirements when created, while registered series require additional filings with the Texas Secretary of State, including a certificate of registered series and documents when winding up or terminating. Source: https://www.sos.state.tx.us/corp/formationfaqs.shtml#LLC1
Corporate Transparency Act Requirements
The CTA applies to “reporting companies,” which are entities created by filing documents with a state secretary or similar authority under state law. Series LLCs raise the question of whether each individual series within the LLC must file as a separate reporting company or whether the parent LLC alone is responsible for submitting a BOI report.
For an entity to be classified as a reporting company under the CTA, it is critical to assess whether the individual series were created by the filing of a document with the relevant government authority.
BOI Reporting for Series LLCs in Texas: A Closer Look
Consider a series LLCs formed in Texas; the parent LLC is formed through the filing of Articles of Organization with the Secretary of State. Importantly, this filing is what establishes both the parent and any potential series under the parent’s structure. If the series LLC has filed for assumed names (doing business as or DBA) for its individual series, those filings do not arguably result in the legal formation of the series itself but merely indicate the use of a trade name.
In the case of assumed names, the mere filing of a DBA for a series may not meet the definition of a reporting company since it may not be considered “created” because of the filing. In fact, the Texas Secretary of State FAQs says, “The secretary of state does not have a specific form to be used to form a series LLC.” (Series LLCs; Question 2)
However, the distinction between protected series and registered series is where reporting obligations should be considered:
Protected Series (Formed before June 1, 2022): Protected series in Texas are not required to submit any separate filings to the Secretary of State when they are created under the umbrella of the parent LLC. Since no specific filing is required for the formation of these series, it could be argued that the parent LLC alone is the reporting entity under the CTA since it was the only one that filed a document that resulted information. Professionals handling protected series may choose to report under the parent LLC and list the individual series as DBAs under the parent LLC’s beneficial ownership information report.
Registered Series (Formed on or after June 1, 2022): Registered series have additional filing requirements, including a certificate of registered series filed with the Texas Secretary of State. These series are formally registered and have distinct filing obligations that could arguably make them separate reporting companies under the CTA. However, do these filings result in the formation of the series? While FinCEN has not yet provided explicit guidance on this matter, entities managing registered series may consider filing separate BOI reports for each separate series as they are created by filing the certificate of registered series.
The Lack of FinCEN Guidance
As of now, FinCEN has not provided specific guidance on whether each series within a series LLC must file separate BOI reports or if the parent LLC can file on behalf of all series. Given the complexity of this issue, and the significant variation between different states that have series LLC statutes, it is very likely that guidance may not be released on this topic for some time, if at all. This lack of guidance leaves professionals handling series LLCs with some uncertainty, and with a looming December 31, 2024 deadline for entities created prior to January 1, 2024.
While the logical approach may vary based on the specific characteristics of each series (jurisdictional specifics, type of entity, method of formation, etc.), compliance will ultimately depend on differing regulatory interpretation and jurisdictional nuances, and ultimately is subject to significant interpretative uncertainty.
Conclusion
Until more clarity is provided, it’s important for legal and other professionals to carefully evaluate the filing status of each series within a Series LLC, consider whether the series was created through formal filing, and stay informed on evolving FinCEN guidance. Additionally, state-specific nuances, such as Texas’s rules for assumed names and the distinctions between protected and registered series, must be taken into account to ensure proper reporting under the CTA. It may be a good idea to incorporate language into CTA engagement letters to be certain that clients are aware that reporting requirements may change based on FinCEN guidance.
Disclaimer: This blog article is intended for informational purposes only and does not constitute legal advice. For advice on specific legal issues, please consult with a qualified attorney.
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:
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.
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.
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.
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.
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.
What is the New York LLC Transparency Act (NYLTA)?
On December 22, 2023, Governor Kathy Hochul of New York signed into law Senate Bill 995B/Assembly Bill 3484A, marking a pivotal moment for Limited Liability Companies (LLCs) operating within the state. This legislation, known as the New York LLC Transparency Act (NYLTA), was significantly amended on March 1, 2024, changing the trajectory of this reporting requirement for entities domiciled in New York.
Key Provisions of the NYLTA
Under the NYLTA, both domestic LLCs formed in New York and foreign LLCs authorized to do business in New York must file beneficial ownership information (BOI) with the New York Department of State.
This requirement aligns with the federal Corporate Transparency Act (CTA), targeting LLCs that must file a beneficial ownership information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). Exempt LLCs under the CTA, and thus the NYLTA, must submit a statement to the New York State Department, signed by a company member or manager, indicating the exemption provisions they qualify under.
Companies subject to reporting requirements must disclose beneficial owners’ full legal names, dates of birth, current business street addresses, and a unique identifying number from an acceptable document (e.g., US passport, driver’s license). The NYLTA’s definition of a “beneficial owner” mirrors the definition under the CTA as any individual who, directly or indirectly, exercises substantial control over the LLC or owns at least 25% of its ownership interests.
New York LLCs formed or registered before January 1, 2026, will have until January 1, 2027 to disclose their beneficial owner information to the state. Those formed after the effective date must report their BOI to the state the same day that they file formation documents. Failure to file within 30 days places an LLC in the public database with the status of “Past Due, escalating to “Delinquent” if the failure extends beyond two years without rectification.
The NYLTA introduces a dynamic aspect to compliance through its updating requirements. The March 1, 2024, amendment transformed the obligation into an annual confirmation or update of BOI or exempt status. This requirement varies greatly from that of the CTA, since the CTA requires that updates be filed within 30 days of a change. Also, the NYLTA sets a 90 day requirement on corrected reports, while the CTA’s is 30 days.
Privacy Considerations and Access to Information
Addressing privacy concerns, the NYLTA initially planned for a publicly accessible database of beneficial owners. However, the chapter amendment revises this approach, ensuring personal identifying information submitted under the LLCTA remains confidential. This measure balances the demand for transparency with the need to protect individual privacy, making information accessible solely for law enforcement or as required by court orders.
Submitting CTA BOI Reports to New York
The chapter amendment permits an entity to submit their initial BOI Report filed under the CTA, provided that all necessary information as required by the NYLTA is included. While this may help reduce reporting efforts, it is not applicable to all entities. Specifically, individuals and entities who obtain and report FinCEN Identifiers (FinCEN IDs) would prevent the NY entity from submitting that report to the state. This is because the information associated with a FinCEN ID is not accessible to the Secretary of State, resulting in an initial report that lacks the required information under the NYLTA.
Looking Ahead
The enactment of the NYLTA signifies a move towards greater transparency and accountability in the operations of LLCs in New York. As the legislative landscape continues to evolve, with amendments and potential replacements on the horizon, LLCs must stay vigilant and prepared to adapt to these new regulatory demands. The extended timelines and revised provisions offer entities additional time to align with the NYLTA’s requirements, underscoring the importance of proactive compliance and the ongoing dialogue between the state legislature, regulatory bodies, and the business community.
