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:

1. Was in existence on or before January 1, 2020; (thus no more entities of this type can be created).
2. Is not engaged in active business.
3. Is not owned by a foreign person, whether directly or indirectly, wholly or partially.
4. Has not experienced any change in ownership in the preceding twelve-month period.
5. 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
6. 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If you have an entity that is no longer active but does not meet all the above requirements to be “grandfathered” as inactive you must either submit a report or formally dissolve the entity.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:

1. 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.
2. 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:

1. Non-expired passport issued by US government
2. Non-expired identification document issued by State, local government, or tribe
3. 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:

1. For entities formed after January 1, 2024, report must be filed with FinCEN within 30 calendar days after formation.
2. 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.  

The post The Corporate Transparency Act appeared first on Ann Couch CPA.

• 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:
  • Unused sick leave may carry over to and be used in the following year, but the annual usage requirements still apply.
  • You may pay the unused hours at the end of the year, as long as the minimum annual hours (24/40} are available to the employee at the beginning of the year.
  • 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.

The post Fair Wages and Healthy Families Act appeared first on Ann Couch CPA.

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

The post Tax-Related Data Breaches appeared first on Ann Couch CPA.