Memorial Day doesn’t always mean rest for the small business owner — depending on what kind of industry you’re in.
There’s often a lot of hustle around national holidays (special promotions, big sales, holiday weekend shopping). And debt ceiling deals to make, apparently, since that’s what our government was working on over the weekend. Some notables:
- Decreased IRS budget (20 billion less than the projected 86 billion previously allotted by the American Rescue Plan)
- An end to unilateral extensions for student loan payments after August
- Debt ceiling increase gets pushed out for two more years
What a way to spend a holiday weekend.
Even with any “extra” in your arena, I hope you had a moment to enjoy some beginning-of-summer weather and something off the barbecue.
A few weeks ago, I promised a part two on the FinCen reporting requirements. And today, I’m going to deliver.
As of next year, thousands of small companies will have to start reporting information on their owners, thanks to the Financial Crimes Reporting Network (FinCEN). The agency looks to fight financial criminals, and therefore wants small companies and corporations to share information in the spirit of saving us all from the crooks.
Before I share too much, let me say: This is something you’ll want to make sure you pay attention to. There are some exemptions, so read on to know if your business falls in that purview.
And if it does, my team and I can help with the nuances of it for your Skagit County business. When you’re ready for that, we’re right here:
So, what does that look like for next year, and what do you need to know?
Let’s have a look.
New FinCEN Reporting Requirements for Skagit County Businesses (Part 2)
“With great power comes great responsibility.” – Uncle Ben, “Spider-Man”
If you don’t know about this new requirement popping up for scads of small businesses, it might come as a bit of a surprise — which is why we’re going to look at it today.
A few weeks ago, we quickly overviewed this reporting requirement. Let’s look at a few more details about what exactly the feds want to know.
To refresh your memory: FinCEN looks to implement parts of the Corporate Transparency Act that govern the access to beneficial ownership information, or BOI. The reporting regulations kick in next January 1. They require most small corporations, LLCs, and similar entities created in or registered to do business in the U.S. to report information about their beneficial owners. The information will go into a database that helps track “criminals, corrupt actors and anyone trying to hide ill-gotten gains in the United States” to the inspection of law enforcement here and in other countries.
The feds claim that the states (the level of government where shell companies register, if they register with anybody) can’t currently do enough to track international bad guys who might be setting up shop.
Who do they want?
So, they want information on beneficial owners. Who exactly is that?
In general, a beneficial owner directly or indirectly exercises “substantial control” over a company — or owns or controls 25% or more of the “ownership interests” of the reporting company.
“Substantial control” can involve all the company’s senior officers or anybody directing or with most of the influence over big decisions for the company. “Ownership interests” can include simple shares of stock and equity as well as more complex debt instruments and trusts.
You’ll have to report four pieces of information about each of your company’s beneficial owners via a FinCEN website:
- Their name,
- Residential address,
- And a unique identifying number and issuing jurisdiction from an acceptable identification document (and an image of the document).
These documents include a valid driver’s license or government-issued ID, which includes a U.S. passport. If you don’t have any of those, your reporting company can use the ID number from a non-expired passport issued by a foreign government.
Reporting companies created after next January 1 will have to provide these four pieces of information and document images for company applicants. An “applicant” can be whoever files the document that creates or first registers the reporting company and whoever is primarily responsible for directing or controlling the filing of the document.
No reporting company will have more than two applicants (for example, the founder and the filer of documents).
Does my company need to report?
The rule identifies two types of reporting companies: domestic and foreign.
A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
It’s the same for a “foreign reporting company” except that it’s formed under the law of a foreign nation and is registered to do business in any state or tribal jurisdiction.
FinCEN expects reporting companies will also include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships.
Twenty-three types of entities are exempt: certain types of banks and credit unions; some securities brokers and other types of companies registered with the SEC; some companies associated with insurance; and public accounting firms and some utilities. (You can see a list and more details here.)
(Many of these, by the way, are already regulated by the government and already disclose their BOI information.)
Reporting companies created or registered before January 1, 2024, will have just until New Year’s Day 2025 to file their initial reports. Companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file.
Observers have said that roughly 32 million reporting companies are anticipated in the first year of reporting.
Yeah, that’s a lot.
Is the database safe?
Naturally, you’re probably concerned about how safe this database is. Generally, FinCEN can release your BOI “under specific circumstances” to:
- U.S. Federal, state, local, and Tribal government agencies;
- Foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities;
- Financial institutions using your info for due diligence; and
- The U.S. Department of the Treasury.
FinCEN says the IT system will be cloud-based and “will meet the highest Federal Information Security Management Act (FISMA) level” — which basically admits that a breach would have “a severe or catastrophic adverse effect.”
You can’t argue with that, no matter how you may feel about the new regulations.
It’s natural that you’d have more questions on this FinCEN reporting requirement and now would be the time to sort out the details as they pertain to your company. So, don’t hesitate to get something scheduled with me to talk this over.
I’m here for you and your Skagit County business.
All the best,