One last one Trusts & Estates Webinar sponsored by the American Cancer Society, focused on the requirements of the Corporate Transparency Act (CTA). The two speakers were Stephen Liss, a partner at Dungey Dougherty PLLC and Kevin L. Shepard, a partner at Venable LLP. Speakers presented an overview of the CTA's reporting requirements, affecting entities covered by the CTA that are required to file a report with the CTA, which companies are exempt from filing and information to report. Here are some questions and answers that came up during the webinar.
Speakers note that the following answers are not intended to provide legal advice or opinion. Such advice may only be given when it relates to specific factual situations that the respondent has accepted an engagement as counsel to address.
Application
Question. How will the Financial Crimes Enforcement Network (FinCEN) enforce the law against those who do not comply? Will they cross-reference Internal Revenue Service records to see who didn't report and send non-compliance letters?
A. FinCEN currently indicates that it seeks to educate the public about the reporting requirements under the CTA rather than pursue enforcement actions against those who do not comply with the CTA. It is not clear when FinCEN will change this approach and initiate such enforcement actions. The access regulations issued by FinCEN in late December 2023 define who has access to the beneficial ownership database maintained by FinCEN. FinCEN's FAQ (Q.2) states in part: “FinCEN is authorized to disclose beneficial ownership information to federal agencies engaged in national security, intelligence, or law enforcement activities, as well as federal regulatory agencies that oversee financial institutions for compliance with customer due diligence requirements. To request beneficial ownership information from FinCEN, such federal agencies will first need to enter into a memorandum of understanding with FinCEN that describes how the agency will protect the security and confidentiality of the information. It is unclear whether such an agreement currently exists with the IRS, another branch within the US Treasury.
Fiduciary reporting requirements
Q. If a trustee is determined to be a beneficial owner, who must report? An individual owner of the trust company or the trust company as an entity?
A. The reporting company is responsible for: (1) identifying its beneficial owners, (2) obtaining the required information from each beneficial owner, and (3) reporting that beneficial owner information to FinCEN. Trusts complicate the process of identifying beneficial owners, but they do not remove the reporting burden from the reporting company.
Corporate Administrator Requirements
Q. If you are a corporate trustee of a trust that owns a reporting company, does the trust have to report?
A. It is always the reporting company that must report under the CTA, and common law trusts are not reporting companies. As a corporate trustee, you may need to help the reporting company identify those who have the power to “dispose” of interests in the reporting company owned by the trust. For example, is there a trust officer who can decide to sell or distribute that equity interest? Is there an investment committee or distribution committee that would make that decision? In addition, released recently Page D16 indicates that the owners of the corporate trustee will be treated as owners of a proportionate share of each reporting company that the corporate trustee manages. This ownership may need to be disclosed to the reporting company so that it can fulfill its reporting obligations.
Liability of law firm
Question. If your law firm forms a limited liability company or corporation for a client, does the law firm have a duty to file on behalf of that entity?
A. According to the CTA, the reporting company always has a reporting obligation. In this scenario, an attorney or staff member at the law firm may be a company applicant. They will be required to provide their personally identifiable information or FinCEN identification number to the reporting company so that it can comply with its obligations under the CTA, but the law firm itself has no filing obligation.
Notice of Changes
Q. Who is responsible for failure to notify changes in beneficial owner information (BOI)?
A. The reporting company may be liable together with its senior officers. orn individual who knowingly submits a false or misleading beneficial ownership information report on behalf of a company may be subject to the same civil and criminal penalties as the reporting company and its officers (as well as a beneficial owner or applicant of the company that refuses to provide the required reporting company information If an individual receives a FinCEN Identifier, that individual will be subject to civil and criminal penalties if they fail to notify FinCEN of any change in the reported BOI within 30 calendar days.
Status of Lawsuits
Q. What is the status of the lawsuits and predictions that the report will be dropped?
A. The federal case that has most advanced this point is the Alabama district court case, NNational Small Business United v. YellenNo. 5:22-cv-01448 (ND Ala.) It is now on appeal to the US Court of Appeals for the Eleventh Circuit. Papers are being filed in that appeal and oral argument is set for the week of September 16, 2024. Other federal cases in Ohio, Maine and Michigan are still in their preliminary stages. Predicting how the federal courts will decide these cases would be pure guesswork.
A number
Q. Do we need to apply for an Employer Identification Number (EIN) for each reporting company?
A. The BOI report form requires that the EIN be provided for the reporting company.
CPAs
Q. Are CPAs prohibited from filing this report?
A. Any individual can submit a BOI report on behalf of the reporting company, but must certify that the information in the report is true, accurate and complete. Advising a reporting company who the beneficial owners are may be considered the practice of law. As a result, while filing the report may be convenient for a CPA, it may not be advisable for the CPA to determine who the beneficial owners are except in the simplest of cases.
Financial Advisors
Q. As a financial advisor, do I have an obligation to notify clients of CTA requirements?
A. Financial advisors are highly regulated by various agencies and each advisor should check their institution's policies regarding providing advice to CTA. That said, letting your clients know about CTA represents an opportunity to benefit them and help demonstrate the value you add as a holistic advisor who thinks about your clients' needs beyond your investment expertise.
Rules of attribution
Q. Do attribution rules apply? For example, is ownership combined if an individual is the beneficiary of multiple trusts that own an LLC?
A. There are no “rules of attribution” in the traditional sense, meaning that assets owned by one party are considered owned by another. For example, shares owned by one spouse are generally not considered owned by the other spouse. However, ownership is aggregated, so if you directly own an interest in a reporting company and are the sole beneficiary of a trust that owns part of the same reporting company, you will need to aggregate that ownership to determine how much percentage of reporting company you beneficially own. In addition, when a reporting company is owned through a multiple trust, people may be treated as owning the same interest. For example, if a trust has a single beneficiary and a single trustee, both the beneficiary and the trustee will be treated as owners of any reporting company interest held by the trust.