Column: Not a business owner? Think again – FinCEN follow-up
By Jason Glisczynski
An article I wrote was recently published in the Metro Wire. You can read it here:
https://spmetrowire.com/column-small-medium-business-owners-saddled-with-new-regulation/
After being published we have had a lot of questions coming in from people asking if they are considered a reporting entity for purposes of complying with the CTA (Corporate Transparency Act) and filing BOI (Beneficial Ownership Information) with FinCEN (Financial Crimes Enforcement Network).
A reporting entity is required to file information (and update when required) with FinCEN or face penalties. Read the above article if you are unfamiliar with the term “reporting entity”.
The most common oversight I have seen so far is with individuals who have established an LLC (Limited Liability Company), LLP (Limited Liability Partnership), FLLP (Family Limited Liability Partnership) or something similar. Often, these people don’t see themselves as “business owners” because the LLC (or other entity) was set up for the purpose of holding a piece of real estate like a rental property or family cabin. Unfortunately, such entities are likely considered reporting entities and must comply with the law.
To add yet another wrinkle, businesses that are owned in part by a trust may have significant complexity when complying with the new law. Determining who is a “beneficial owner” may be challenging depending on the trust structure, and changes to the trust or modifications—such as an address change by any of the people associated with the trust—may require filing an update with FinCEN.
Here is an excerpt from an article written by attorney David M. Brown with the law firm Saul Ewing:
“Trusts Are Not Reporting Companies
The basic definition of a reporting company is a corporation, limited liability company, or other similar entity that is created or in the case of any foreign entity, registered to do business, by filing a document with a Secretary of State or similar office under the law of any United States state or Indian Tribe. This seemingly simple definition actually is deceptively complex (the definition’s intricacies and a list of specific types of exempt entities have been addressed in other alerts. However, because typical non-statutory trusts are not created by filing of a document with any state, such trusts clearly are not reporting companies.
But Trusts May Have Interests in Reporting Companies
The fact that trusts are not reporting companies for the purposes of the CTA does not mean that they, and importantly their creators, their beneficiaries, and their trustees, are not impacted by the CTA.
Among the information that must be included in a reporting company’s BOI report is personal information about each beneficial owner of the reporting company. A “beneficial owner” broadly is defined as any individual who directly or indirectly (i) owns or controls at least 25 percent of the ownership interests in the reporting company; or (ii) exercises substantial control over the reporting company. While the 25 percent test seems straightforward, the substantial control test is intentionally broad, and almost any individual who can make important decisions impacting the reporting company may be deemed to exercise substantial control.” 1
The point is, the new law is a huge pain for a lot of people, business owners, executives, managers, trusts, and the lawyers, accountants, and private wealth managers that serve them. The first step is determining if you are in fact a reporting company and need to comply by filing with FinCEN.
After that, if you are a reporting company, you have a few options that we have vetted:
- Free — DIY (Do It Yourself), go to FinCEN and file directly
- Pay a little — DIY with assistance, use a filing service for as little as $19 one time or up to $500 (or more) annually depending on your structure and number of Beneficial Owners.
- Pay a lot — Concierge, hire a law firm for $250-$1,000 (or more) flat rate or hourly at $210-$325 per hour
We are assisting clients with all options as part of their unique VFO (Virtual Family Office). Our aim is to lift the weight of addressing this issue off their shoulders and connecting them with the right solution for their situation.
Be warned—similar to when the ERC (Employee Retention Credit, a refundable tax credit) was introduced as part of the SECURE Act a number of “credit mills” popped up that took advantage of businesses to make massive profits, putting business owners at significant risk. We have already seen that with FinCEN filings, with some filing companies and law firms charging (in my opinion) exorbitant fees for analysis and filing.
If you are not a client and would like assistance in this area, book a Discovery Meeting with an advisor and we will analyze your situation and help point you in the right direction. While we do not do the filing in house, our vetting process has identified a number of options and we will assist with implementation. To schedule your Discovery meeting CLICK HERE, reply to this email, or call/text the office at 715-544-1610.
Jason Glisczynski is co-owner and principal advisor for Silvertree, LLC. He is a CERTIFIED FINANCIAL PLANNER™ Professional and a Certified Private Wealth Advisor® Professional, and specializes in working with business owners, executives, and workers in manufacturing.
Investment Advisory Services offered through Brookstone Capital Management (BCM) LLC, a Registered Investment Advisor. Silvertree, LLC and BCM are separate companies. Visit www.silvertreeplan.com for more information.
