Way too early to worry - New Responsible Party reporting

[BulldogTom]

I am looking forward to hearing more about this when I do my CPE this year.  I still don't know if a related party is considered to have 25% ownership - anyone know that answer?

Will you be filing these for your Corps?  I plan to stay as far away as possible.   $500 per day penalties is too much liability for me to take on.

Tom
Longview, TX

[Lee B]

Are you referring to Form 8822-B?  The current revision is dated December 2019?

The related penalties that I know about are related to unpaid employment taxes, especially unpaid Trust Funds?

[BulldogTom]

@cbslee  Nope, there is not an IRS form for it.  It will be an online portal (Like FinCen?).   Corporations forming in 2024 must report within 30 days of formation.   Existing corporations must report by 1/1/2025.   Responsible Parties (25% owners and board members) must be listed with current residence address and picture ID uploaded (Like ID.me?).   Any changes to the information must be updated within 30 days of the change.   Penalty for non-compliance is $500 per day.

Tom
Longview, TX

[jklcpa]

Not that it means anything, but I haven't heard about this. Do you have something authoritative to share on this?

The definition for responsible party is here at this IRS page, and is currently also found in the instructions to form SS-4.

[Slippery Pencil]

The bill says "relationship".  Are you wondering if both spouses have to be listed for a solely owned entity of one spouse?  Or if two siblings have to be listed if their joint ownership exceeds 25%?

https://www.congress.gov/bill/116th-congress/house-bill/2513/text

“(d) Definitions.—For the purposes of this section:

“(3) BENEFICIAL OWNER.—

“(A) IN GENERAL.—Except as provided in subparagraph (B), the term ‘beneficial owner’ means a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise—

“(i) exercises substantial control over a corporation or limited liability company;

“(ii) owns 25 percent or more of the equity interests of a corporation or limited liability company; or

“(iii) receives substantial economic benefits from the assets of a corporation or limited liability company.

“(B) EXCEPTIONS.—The term ‘beneficial owner’ shall not include—

“(i) a minor child, as defined in the State or Indian Tribe in which the entity is formed;

“(ii) a person acting as a nominee, intermediary, custodian, or agent on behalf of another person;

“(iii) a person acting solely as an employee of a corporation or limited liability company and whose control over or economic benefits from the corporation or limited liability company derives solely from the employment status of the person;

“(iv) a person whose only interest in a corporation or limited liability company is through a right of inheritance; or

“(v) a creditor of a corporation or limited liability company, unless the creditor also meets the requirements of subparagraph (A).

[jklcpa]

Thanks for the link to the bill. It passed the House and latest action in the Senate was in the fall of 2019.  I'm not going to worry until it passes, at least not at this time.

[BulldogTom]

48 minutes ago, Slippery Pencil said:

The bill says "relationship".  Are you wondering if both spouses have to be listed for a solely owned entity of one spouse?  Or if two siblings have to be listed if their joint ownership exceeds 25%?

Adult child with a minority interest (less than  25%) of the company but the parents own more than 25%....

Tom
Longview, TX

[Lion EA]

The Corporate Transparency Act was in my update classes last December.

https://www.fincen.gov/boi

Also, if you have been forming companies with the Secretary of State for your clients, you might want to revisit that decision before 2024:

11. Who is a company applicant of a reporting company?

There can be up to two individuals who qualify as company applicants —

the individual who directly files the document that creates, or first registers, the reporting company; and

the individual that is primarily responsible for directing or controlling the filing of the relevant document.

No reporting company will have more than two company applicants. If only one person was involved in filing the relevant document, then only that person should be reported as a company applicant.

Only reporting companies formed or registered on or after January 1, 2024, will have to report their company applicants. Companies created or registered before January 1, 2024, do not have to report their company applicants.

The following examples illustrate how to identify company applicants in common company creation or registration scenarios.

Example 1: Individual A is creating a new company. Individual A prepares the necessary documents to create the company and files them with the relevant state or Tribal office, either in person or using a self-service online portal. No one else is involved in preparing, directing, or making the filing.

Individual A is a company applicant because Individual A directly filed the document that created the company. Because Individual A is the only person involved in the filing, Individual A is the only company applicant. State or Tribal employees who receive and process the company creation or formation documents should not be reported as company applicants.

Example 2: Individual A is creating a company. Individual A prepares the necessary documents to create the company and directs Individual B to file the documents with the relevant state or Tribal office. Individual B then directly files the documents that create the company.

Individuals A and B are both company applicants—Individual B directly filed the documents, and Individual A was primarily responsible for directing or controlling the filing. Individual B could, for example, be Individual A’s spouse, business partner, attorney, or accountant; in all cases, Individuals A and B are both company applicants in this scenario.

[jklcpa]

Thanks @Lion EA.  I can now see why this is being put into effect and that this may be put on tax preparers to file these reports.

Not to derail this topic, but I will say though that as tax preparers, we should not be "forming companies with the Sec of State for [your] clients" as you said.  At least in my state, that would be considered practicing law and also most likely would not be covered under tax preparers' typical malpractice policies.  If anyone here is doing this, you may want to check with your insurance carrier about your current risk exposure.

[BulldogTom]

1 hour ago, jklcpa said:

Thanks @Lion EA.  I can now see why this is being put into effect and that this may be put on tax preparers to file these reports.

Not to derail this topic, but I will say though that as tax preparers, we should not be "forming companies with the Sec of State for [your] clients" as you said.  At least in my state, that would be considered practicing law and also most likely would not be covered under tax preparers' typical malpractice policies.  If anyone here is doing this, you may want to check with your insurance carrier about your current risk exposure.

I agree about forming companies with the SOS.   Not for me to do.   I just ask for the proof of filing, articles, EIN, etc.   

However, since this is an IRS reporting requirement, and we do IRS STUFF with our clients, I think they are going to want us to do the reporting for them, very much like our clients wanted us to do the FINCEN reporting.   Where do we draw the line in what we do for our clients?

Tom
Longview, TX

[Lion EA]

I don't form companies for clients. I do see preparers talk about doing that on message boards. I also do NOT want to do this filing, so hope the publicity from now through 01/01/2024 talks about "company owners" filing. Clients will still come to us (if they even know about this) with their tax information. I think I'll give them the FinCEN link.

What we won't know about until the following tax season are the new companies that form and have a 30-day deadline to register their owners, etc., on FinCEN. Well, more of my clients call me before/when they make financial moves each year, so one more thing to advise them about.

This was in my update classes in December 2022/January 2023. I hope to hear a lot more this year, best practices stuff like "give then the FinCEN link" or whatever. I don't expect the nitty gritty of registering to be final until it actually opens 01/01/2024.

I'm seeing a larger price increase for my businesses. Does this include Schedules C, E, and F? Form 4835?

[Catherine]

1 hour ago, BulldogTom said:

Where do we draw the line in what we do for our clients?

I draw the line at anything outside the tax return that has large preparer penalties attached (even when filing is done correctly based on information given by client that turns out to be incorrect). So, no FinCen 114 (FBAR) forms - just the link to the online forms, and a suggestion to print the pdf first and fill it out where one can double-check all the info before submitting. I will include 8938s in a return. I would touch exactly none of these corporate filings. 

[jklcpa]

3 hours ago, BulldogTom said:

However, since this is an IRS reporting requirement, and we do IRS STUFF with our clients, I think they are going to want us to do the reporting for them, very much like our clients wanted us to do the FINCEN reporting.   Where do we draw the line in what we do for our clients?

I can only speak about my state's requirements for formation, and corporations and LLCs incorporated here in DE must designate a registered agent, either themselves or hire an attorney or other agency that represents/handles the legal matters on behalf of these entities. These attorneys or agencies file the annual franchise tax with the state SOS here that keeps the companies in good standing and this new FinCen reporting seems to be similar to me and should be handled by either these corporate clients or their registered agents, not by me.

I'm with Catherine, and I've submitted 8938s for several years for exactly one client in my entire career.  He also needed FBAR filings that he did himself as I wasn't going to be responsible for that or having to sign up for yet another government agency's filing access for only one client. He moved recently and changed to a more local preparer, so I no longer have that worry anyway.

There are the separate agencies that we deal with such as the SSA for filing W-2s that are still tax forms, or some of us utilizing the directly filing of 1099s through the IRS FIRE system, but those are all tax prep-related forms being filed. As I stated above, I think this is beyond the scope of tax preparation, and this is one more reason that I'm closer to the end of my career than the beginning of it.

[Lee B]

In the next 8 months there will many online articles abut this topic which will analyze all the in and outs

[Lee B]

Tom, you must have too much time on your hands to thinking about this

[BulldogTom]

45 minutes ago, cbslee said:

Tom, you must have too much time on your hands to thinking about this

The only reason it came up was Spidell sent me an email with a 4 minute primer on the topic.   It is not as in depth as it will be at their update seminars, but it was a good overview of what to expect coming down the pipeline. 

@cbsleeI am thinking about packing for our vacation more than I am thinking about this issue.

Tom
Longview, TX

[Lee B]

Tom, have a great vacation. This is my first day back to work after two weeks off.

[jklcpa]

I'm reviving this to say that I'm relieved not to have this responsibility or risk except for my own corporation. I'll still have to deal with the government portal, but only for myself and that's it. 

I spoke with an attorney from the firm that handles my remaining corps and LLCs that will be handling this reporting. He said it's all up in the air and sure to be a nightmare when people question the need, fail to respond, or notify them with changes. They're not sure what the charge will be but sure it will not be inexpensive.

[schirallicpa]

Thank you everyone for creating this conversation.  I was unaware of the new reporting.  I was chastised by a local attorney for helping a client create a Corp a long time ago.  So I leave that alone.  But I did do the paperwork to create my husband's corporation several years ago.  So I will have to keep up with this reporting requirement.  

 

[grandmabee]

On 5/3/2023 at 7:41 AM, Lion EA said:

I don't form companies for clients. I do see preparers talk about doing that on message boards. I also do NOT want to do this filing, so hope the publicity from now through 01/01/2024 talks about "company owners" filing. Clients will still come to us (if they even know about this) with their tax information. I think I'll give them the FinCEN link.

What we won't know about until the following tax season are the new companies that form and have a 30-day deadline to register their owners, etc., on FinCEN. Well, more of my clients call me before/when they make financial moves each year, so one more thing to advise them about.

This was in my update classes in December 2022/January 2023. I hope to hear a lot more this year, best practices stuff like "give then the FinCEN link" or whatever. I don't expect the nitty gritty of registering to be final until it actually opens 01/01/2024.

I'm seeing a larger price increase for my businesses. Does this include Schedules C, E, and F? Form 4835?

I attended two classes on this and one speaker said yes for C & F and another said no.  I guess I will be waiting until the rules are more clear.

[Lee B]

"A “Reporting Company” is a domestic or foreign corporation, limited liability company, or similar entity that was either formed or registered to do business in any state or jurisdiction by filing a document with a secretary of state or other similar office and which does not qualify for an exemption. " (There are 23 exemptions)

Depending on how this is interpreted, it could include any entity with an "Assumed Business Name" registration with any state.

Including Schedule C, E and F without ABNs appears somewhat unlikely.

"We will see what happens"

[Lee B]

FINCEN just released an updated Small Business Compliance Guide:

https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf

 

[BulldogTom]

On 9/18/2023 at 9:48 PM, cbslee said:

FINCEN just released an updated Small Business Compliance Guide:

https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf

 

I downloaded the guide and it is pretty well written for a government document.   Cleared a lot of my questions up.   Notice that there is a "Catch All" for each class of reportable persons...very slippery when a $500 per day penalty is on the line.

I sent a .pdf copy to all my clients who have LLCs, Corps & Partnerships.   Told them I can't do the reporting for them but as a courtesy I was providing the guide to let them know about their requirements.

Tom
Longview, TX

[BulldogTom]

On 9/1/2023 at 9:26 AM, cbslee said:

"A “Reporting Company” is a domestic or foreign corporation, limited liability company, or similar entity that was either formed or registered to do business in any state or jurisdiction by filing a document with a secretary of state or other similar office and which does not qualify for an exemption. " (There are 23 exemptions)

Depending on how this is interpreted, it could include any entity with an "Assumed Business Name" registration with any state.

Including Schedule C, E and F without ABNs appears somewhat unlikely.

"We will see what happens"

I agree that the plain reading of the guide seems to exclude C&Fs.   It appears that the trigger for most of our clients is a formation document filed with the SOS of the state in which they are formed.  

Just a random thought, companies that form after 1/1/24 have to include the "applicant".   Lawyers and Public Accounting Firms who set up these entities are going to have to be included on the report as the "applicant"?   But Law Firms and Public Accounting Firms are exempted from the reporting requirements.  I wonder how that is going to play out?

Tom
Longview, TX

[BulldogTom]

Another Random Thought....these fractional CFO companies may have to be included on the reports as CFO's are explicitly included in the section on persons having significant control over the company.   And the "catch all" provision states that the work you do is determinative of the requirements for reporting, not the title.   So a CFO cannot have their title changed to "Finance Manager" just to escape the reporting requirements.

I wonder when FinCEN is going to start auditing the reports, if they ever do?

Tom
Longview, TX