Ann Couch, Author at Ann Couch CPA

The Corporate Transparency Act

Ann Couch — Thu, 25 Jan 2024 18:16:13 +0000

PLEASE READ THIS NEWSLETTER IN ITS ENTIRETY. THERE IS A STRONG LIKELIHOOD IT WILL APPLY TO YOUR SITUATION.

December, 2023

THE CORPORATE TRANSPARENCY ACT

On January 15, 2021, a new law was passed by Congress, the “Corporate Transparency Act” (hereafter referred to as CTA). It is intended to be a tool against money laundering, illicit activities, corrupt acts, etc. This act requires corporations, LLCs, and other entities to report beneficial owner information to the Financial Crimes Enforcement Network (FinCEN). Reporting will officially begin on January 1, 2024. Note that there will be different rules for entities formed before 2024 and those formed in 2024 or after year.

Although there are some exceptions to the requirements, most small, closely held corporations and LLCs will need to file these reports. It will impact many entities across the United States.

REPORTING COMPANY

The law requires certain entities to file reports. (This newsletter will not address any foreign reporting requirements.)

A reporting company is a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or any other similar office under the law. There are certain narrow exemptions from the reporting requirement for certain entities.

A special category was created to grant exempt status to avoid long forgotten entities from running afoul of the rules. To qualify for this inactive entity status the entity must meet all the following criteria:

Was in existence on or before January 1, 2020; (thus no more entities of this type can be created).
Is not engaged in active business.
Is not owned by a foreign person, whether directly or indirectly, wholly or partially.
Has not experienced any change in ownership in the preceding twelve-month period.
Has not sent or received any funds in an amount greater than $1,000, either directly or through any account in which that entity or an affiliate of the entity had an interest, in the preceding twelve-month period; and
Does not otherwise hold any kind or type of assets, whether in the Unites States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

If you have an entity that is no longer active but does not meet all the above requirements to be “grandfathered” as inactive you must either submit a report or formally dissolve the entity. Corporations that have been administratively dissolved must file if the administrative dissolution is not at least 3 years old.

BENEFICIAL OWNER

Under the law, information about each “beneficial owner” of a non-exempt entity must be reported to FinCEN, with any changes to that information timely reported as well. Understanding who a beneficial owner is key. It means with respect to an entity, an individual who directly or indirectly:

Exercises substantial control over the entity. This includes
1. Senior officer or board representation, including president, CEO, CFO, COO, general counsel
2. Individual who has authority over appointment or removal of senior officer or a majority of the board of directors
3. Directs, determines, or has substantial influence over important decisions of the company.
4. Rights associated with financing arrangements.
5. Any other form of substantial control over the company.
Owns or controls not less than 25% of the ownership interest of the entity. This includes equity, stock, capital or profits interest.

INFORMATION TO BE REPORTED ABOUT THE ENTITY

Full legal name, current address, state, Taxpayer Identification Number (EIN), and type of report – initial report, updating report, or correcting report.

INFORMATION TO BE PROVIDED ABOUT THE BENEFICIAL OWNER

Full legal name, date of birth, current residential address (must be street address, not PO), unique identifying number and document from an issuing jurisdiction from one of the following:

Non-expired passport issued by US government
Non-expired identification document issued by State, local government, or tribe
Non-expired driver’s license issued by the State

An image of the document from which the identifying number was obtained and an image of the person’s photograph on the document must be included.

UPDATED OR CORRECTED REPORT

An updated or corrected report must be filed within 30 calendar days after ANY of the information reported changes or is found to be incorrect. For example, if the address of a beneficial owner changes, the report must be updated; if you renew a document used to report (i.e. driver’s license or passport) the report must be updated. If an entity now meets the requirements to be exempt from reporting, FinCEN must be notified; if an entity no longer meets the exempt requirements a report must be filed.

PENALTIES FOR REPORTING VIOLATIONS

Penalties for willfully failing to report or reporting inaccurate or fraudulent reports subject to civil penalty of not more than $500 PER DAY. Late reports are also subject to this penalty of $500 PER DAY.

WHEN REPORTS ARE DUE

There are two different due dates for reports depending upon date the entity was formed:

For entities formed after January 1, 2024, report must be filed with FinCEN within 30 calendar days after formation.
For entities formed prior to January 1, 2024, report must be filed by January 1, 2025.

HOW TO FILE REPORTS

Reports must be filed through a secure filing system available via FinCEN’s website. FinCEN is currently building out a Beneficial Ownership Secure System (BOSS) to receive and store this information, expected to be live 1/1/24. Information in BOSS is not available to the general public and is not accessible through Freedom of Information Act requests.

WHAT TO DO NOW

You should begin collecting all the pertinent information for your entities, especially the addresses, taxpayer identification numbers, and copies of official documents that must be uploaded to the FinCEN website. If you own a business you will probably be required to report. If you own an LLC, this includes an LLC formed just to hold property, you must report. Our office will be able to assist you in identifying what entities are required to report and who the beneficial owners are. Normal hourly rates apply. More information is available on FinCEN’s website.

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“Prayer for a Pandemic”

Ann Couch — Fri, 03 Apr 2020 20:49:48 +0000

We want to share a “Prayer for a Pandemic,” written by Cameron Bellm who lives in Seattle, Washington. The way you remember our neighbors in need with love, compassion and support is beautifully described in her writing.

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A Story- Torah for Trying Times

Ann Couch — Fri, 03 Apr 2020 20:45:42 +0000

(told by Rabbi David Wolpe, JCPA interview “Jewish Values During a Pandemic, 3/17/20)

If you go to the Israel Museum, you can see there the oldest fragments of torah that exist in the world. They are two rolled-up silver amulets that were found in the Valley of Hinom, outside the walls of Jerusalem. If you know Jewish tradition, you know that that valley, Gehenna, is the Jewish word for Hell, because that was where the Cananites sacrificed children, and the Jews thought that was hell.
So these amulets found in Gei-Hinom [were] from right around the destruction of the first temple, from 586 BCE. They were found about 20-25 years ago, and when they unrolled them, they found inside the Birkat Kohanim [priestly blessing]: Y’varecha Hashem V’yshimercha….

May God bless you and keep you,
May God’s countenance shine upon you and be gracious to you,
May God be with you and grant you peace.

In other words, the oldest piece of torah we have is a blessing rescued from hell. And that’s what we do, that’s what our tradition teaches us, when something terrible happens, we look to maximize the blessing. To everyone who is watching and to everyone beyond, I wish you safety and good health and try to find the blessing in the midst of this desperate and difficult time.

The Women’s Leadership Institute engages women in the building of a stronger Jewish community.

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What to Do When you Receive an IRS Notice

Ann Couch — Tue, 04 Feb 2020 16:15:08 +0000

Unless you are anticipating a refund from the IRS, receiving an envelope from the IRS in the mail can be a cause for panic. So what should you do if you receive a notice from the IRS?

First, you should open the envelope and read the notice. Take note of the date that an assessed payment is due. This may seem obvious, but we have received unopened IRS notices where a payment was already past due.

Second, send the notice to our office before you make any payments. IRS notices are frequently incorrect. It may simply be a matter of providing additional information to satisfy the insufficiency.

Sometimes payments are misapplied to another account. It is much easier to communicate with the IRS and provide information and explanations than to try to recover money paid erroneously based upon their notice. Sometimes amounts due are small and it is not economically feasible to pay a professional to sort out the facts. But sometimes though the amount may be small, the underlying cause for the notice must be corrected to prevent continuing errors in the future. An example would be payroll deposits that are misapplied. An error one period may carry over to another period causing continuing error notices.

Third, if it is determined that the assessment is correct, pay the amount due in full prior to the due date. Interest on additional assessments continues to accrue on a daily basis until paid in full.

If you receive a refund that you were not anticipating, you should determine the reason for the refund. Contact our office before you deposit the check to determine if it is rightfully yours. Even if it is an IRS error you are obligated to return the money and can be prosecuted for failure to do so.

Whatever the reason for your notice from the IRS, or any other taxing authority, it is important to respond to the notice. Failure to communicate compounds the issue. Timely response, correctly documented often solves the issue.

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Fair Wages and Healthy Families Act

Ann Couch — Fri, 11 Aug 2017 18:07:29 +0000

Proposition 206, passed by Arizona’s legislature in November of 2016, mandates new rules for the issuing and use of paid sick leave for all Arizona employees with the exception of Arizona and Federal government employees. The following points should be considered and implemented:

Employees begin accruing sick leave on July 1, 2017, or on their date of hire, whichever is later. You may require a 90-day probationary period for employees hired after July 1.
Employees accrue one hour of sick leave per 30 hours worked. Exempt employees are considered to work 40 hours per week, unless a normal workweek is shorter.
If your business has 15 or more employees, they can accrue up to 40 hours of sick leave per year. If 14 or fewer employees, they can accrue up to 24 hours per year. Company policy may allow for greater amounts than this.
You may choose two ways to treat unused sick leave:
- You are not required to pay for unused sick pay hours for employees who retired, resigned, or were terminated.
- Permissible uses of sick time include: medical care for mental or physical illness employee or for a family member, closure of business or school due to public health emergency, addressing domestic violence issues, sexual abuse, or stalking, and meeting with an attorney and arranging for shelter or safe housing.
- Notifying the employer of sick leave is not required prior to leave that is not foreseeable. Otherwise, an employee must make a good faith effort to provide notice to the employer to not unduly disrupt operations. You may require proof or documentation of sick leave only after three straight days of leave taken.
- You may not require an employee to find a replacement or retaliate against the employee for sick time use.
- Reporting requirements include, on each regular paycheck, a summary of sick time available, amount of sick time used that year, and the amount of pay received as earned sick time.
- You must provide all employer contact information in writing upon hire and maintain payroll records for four years.
- Notice to employees can be provided with an official poster in a conspicuous place. See www.azica.gov for a sample poster.
- Implementation of these rules should include revision of your current policies, and determining and communicating the following information to your employees: method of determining the sick pay year, the smallest increment of time to record/report, method of providing payroll information, the cash-out or carryover method, and how the new rules will affect your current sick leave/PTO plan.

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Tax-Related Data Breaches

Ann Couch — Tue, 22 Sep 2015 21:04:19 +0000

The IRS has experienced an increase in fraudulent filing problems. The Government Accountability Office issued a report in January titled “Identity Theft and Tax Fraud”. The report states that while the IRS prevented $24.2 billion in fraudulent identity theft refunds in 2013 the IRS actually paid out $5.8 billion that were only realized as fraudulent later.

Tax-related identity theft occurs when someone uses your Social Security number to file a false tax return claiming a fraudulent refund. Data breaches involving just credit card numbers, driver’s license numbers, etc, without your social security number, while serious, will not affect your tax account.

The Internal Revenue Service stops the vast majority of fraudulent returns. If fraud is suspected, the IRS will contact you via mail. You should follow the instructions in the letter. Oftentimes this letter will state that IRS wants to verify your identity before issuing a tax refund. If you have not yet filed your tax return, this is a definite warning that someone has filed a return with your social security number to claim a refund. You should follow the instructions in the letter. Also contact our office and provide a copy of the letter received.

PLEASE NOTE: The IRS does NOT contact you via Electronic Mail or phone calls. E-mails or phone calls purporting to be the IRS are scams and should not be acknowledged.

Secondly, if we attempt to electronically file your return and the return is rejected for duplicate social security numbers there is a very strong likelihood that a fraudulent return has been filed utilizing your social security number.

If either scenario exists, your tax return will need to be filed on paper rather than electronically. Form 14039 must be attached to the return and photo identification attached. Respond promptly to any correspondence from the IRS.

Also, as a possible victim of identity theft, you should consider the following actions:

Contact one of the three major credit bureaus (Equifax, Experian, or TransUnion) to place a “fraud alert” on your account
Try to determine where or how the personal identifiable information has been lost or stolen.
If a company lost your data, they sometimes offer special services such as credit monitoring, to assist victims
Close any accounts that have been tampered with or opened fraudulently

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Loans to Your Small Business

Ann Couch — Fri, 16 Jan 2015 18:20:49 +0000

Loans between owners and the small businesses they own (shareholders of corporations and members of LLC’s) are subject to special scrutiny. If the loans are not documented correctly, the IRS will treat them in ways that may result in unfavorable tax consequences. These loans must meet certain minimum standards that include:

There must be a written unconditional promise to pay (promissory note).
The loan must be due on demand or on a stated due date.
A reasonable rate of interest must be stated or be determinable by reference to a published rate.
The borrower must be creditworthy.
Payments, including principal and interest, must be reasonable. At least the interest must be paid on an annual basis.

If the above provisions are not in place, now is a good time to have your legal representative prepare the appropriate documentation.

Disclaimer : The information included in this blog post is general in nature and should not be acted upon without further professional assistance.

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Proper Operation of an LLC

Ann Couch — Sat, 10 Jan 2015 18:16:00 +0000

When the limited liability company first came into existence it was quickly adopted in the legal and financial world. This business entity offered several advantages over the other entities that were available at the time: C corporations, S Corporations, sole proprietorships, general partnerships and limited partnerships. An LLC offered the limited liability protection of a corporation coupled with the passthrough tax attributes of a general partnership. A lower capital gains rate on the sale of assets was available to investors, a tax advantage not applicable to corporations. Items of profit and loss could be specially allocated to members separate from their capital interests. With the advent of the singlemember LLC, many possibilities became available to businesses and investors that were not available to a sole-proprietor. The single-member LLC is a legal entity owned by only one member, or in a community property state, a husband and wife provided only one spouse activity participates in the business. The single-member LLC provides the limited liability protection that a corporate structure offers but without the formalities required of a corporation.

For tax purposes, a single-member LLC is referred to as a “disregarded entity”. In simple terms, this means that the profit or loss of the LLC passes through directly to the underlying member as if the LLC did not exist. There is no separate tax return required for the single-member LLC. For example, if an individual establishes a business as a single-member LLC, the profit or loss from that business is reported on Schedule C of the individual’s income tax return. If an individual holds a piece of rental property in a single-member LLC, the profit or loss from that rental activity is reported on Schedule E of the individual’s income tax return.

Because the single-member LLC is referred to as a “disregarded entity” some people have tended to treat these entities as if no regulations exist regarding their operation. This could not be further from the truth. LLC’s must be properly operated in order to secure the limited liability protection that is desired. Since protecting the personal assets of the owner of the LLC is typically the primary reason for establishing an LLC, it is important that owners understand how to properly operate this entity. The focus of this article will be on single-member LLC’s. However, all requirements delineated here also apply to LLC’s with more than one member. However, with multi-member LLCs there is the additional requirement to file a separate tax return for the entity, either a partnership or corporate tax return, depending upon the tax treatment elected for the particular LLC.

The following guidelines will assist in proper maintenance of the LLC:

Articles of Organization must be prepared and filed with the Arizona Corporation Commission.
Although not specifically required, it is recommended that an Operating Agreement be prepared, especially for LLCs with more than one member. Among other things, the Operating Agreement details the authority of the members and the allocation of profit and losses.
Although not specifically required, it is recommended that minutes of the annual meeting of the members be prepared. This is similar to the annual meeting of shareholders for a corporation.
The LLC must have an employer identification number. This number is obtained from the IRS and should be used when opening bank accounts for the LLC.
Property that is to be owned by the LLC must be titled in the LLC name, not the owner’s name. If an LLC is formed after property is purchased, title to the property must be transferred to the LLC.
Loans for the underlying business or property should be in the name of the LLC. The lending institution will usually require the LLC member to personally guarantee the loan or mortgage, but the loan itself should be in LLC name.
The insurance for the real property in an LLC should be purchased by the LLC in the LLC name.
The LLC must have a separate bank account. All revenue from the business or property must be deposited to this bank account and all associated expenses must be paid from this account. If more than one LLC is owned, each must have its own bank account and segregate its revenues and expenses. If one LLC needs cash and other has a surplus of cash, a distribution should be made to the member and then the member should contribute the funds to the LLC with the cash requirement. Alternatively, one LLC could loan funds to the other LLC provided it is clearly delineated in the books and records that a loan has occurred. In no case should one LLC pay the expenses of another LLC, even if commonly owned.
Generally, it is recommended investment property or businesses be owned in separate LLCs. For example, if an individual owns five separate pieces of rental property, five separate LLCs should be established each owning one rental property. The rationale here is to minimize exposure to creditors. In the event an accident occurs on a piece of property and a lawsuit ensues, only the assets in that particular LLC are available to settle creditor claims. Therefore, if only one piece of property exists in the LLC then only that piece of property is subject to loss, provided the LLC has been properly maintained and assets appropriately segregated. Of course logic must prevail and you must determine what risk you have to exposure. As you work at maintaining your LLC, constantly think in terms of building a protective wall around the asset. Keep assets isolated, keep transactions separate and distinct.

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