Episode 450: Beneficial Owner Information Reports: Filing Requirements and Processes

The Corporate Transparency Act (CTA) is a federal anti-corruption and anti-money laundering law that came into effect on January 1, 2024. Among its provisions is the beneficial owner information report (BOIR), which many business entities are required to file, or they may face significant penalties that can increase quickly.

BOIRs are filed with the Financial Crimes Enforcement Network (FinCEN) and are used to identify the entity’s beneficial owners. This is meant to assist FinCEN with identifying bad actors hiding behind business entities to engage in criminal activity. If your organization is engaged in legitimate business, there’s no reason not to comply with the CTA.

Who is a Beneficial Owner?

Beneficial owners must be identified on a BOIR. To be considered a beneficial owner, either of the following must be true about an individual:

  • They own at least 25 percent of a reporting company.
  • They maintain “substantial control” over a reporting company.

The CTA’s definition of “substantial control” is somewhat open-ended, but in general, if any of these are the case for an individual, they likely need to be identified on a BOIR:

  • The individual is a senior officer (a president or chief officer) or general counsel
  • The individual is a general partner of a limited partnership
  • The individual has the authority to remove other officers
  • The individual has control over intermediary entities that possess substantial control over the reporting entity

Who Must File a Beneficial Owner Information Report, and What Entities are Exempt?

Entities that must file a BOIR include limited liability corporations (LLCs), non-publicly traded corporations, and limited partnerships (including limited liability partnerships and family limited partnerships).

Exempt entities include publicly traded corporations, sole proprietorships, non-profit corporations, most trusts, and inactive entities. These entities are not required to file a BOIR with FinCEN. Further, some beneficial owners do not need to be included on a BOIR, including minor children, individuals whose only interest in the reporting company are through a future inheritance, certain creditors, and employees who are not senior officers and whose economic or control benefits are based on their employment status within the company.

What if a Beneficial Owner is Another Entity or a Trust?

If you’ve previously filed a BOIR for a reporting entity and that entity is the beneficial owner of another reporting entity – LLC 1 owns LLC 2, for example, and both need to file a BOIR – you should be able to use a FinCEN number that the reporting system generates upon reporting, and then you can use the FinCEN number to report the beneficial owner information for LLC 2.

However, some have encountered issues with FinCEN’s online filing system that occasionally makes this shortcut entry of a FinCEN impossible without re-entering all of the “end-of-the-line” beneficial owner information for the second entity. This shouldn’t be a problem, as long as you know who the beneficial owners are for the second entity, you can just enter their information to complete the process.

If the entity’s beneficial owner is a trust, check the box that says, “beneficial owner is an exempt entity” and enter the name of the trust in the box.

How is a Beneficial Owner Information Report Filed with FinCEN?

Anyone who is authorized by the reporting entity to file a BOIR may do so. This individual must also provide their personal information (or create their own FinCEN number and provide it) on the BOIR for compliance purposes.

To file a BOIR with FinCEN, go to the agency’s website. Once there, click on “File BOIR” and click on the Web option to File Online. There are numerous prompts to click through and some instructional videos online to watch that demonstrate how to file the BOIR. When submitting the report, the following information will be required:

  • The reporting entity’s name, company EIN, company address and state of formation.
  • The reporting agent’s personal information. If this individual will file many BOIRs in the future, it is recommended that they request a FinCEN number, as this will speed up the process for subsequent BOIRs.
  • The name, address, birthdate and driver’s license or passport information for all beneficial owners, along with a copy of their IDs (either in PDF or JPEG format).

Once the BOIR is filed, make sure to download the filing submission when prompted at the end of the filing process. This is proof that your organization has filed the BOIR. Be sure to save the submission ticket under a document name for the entity that corresponds to the BOIR just submitted. The filing ticket itself will not have the entity name on it.

If you believe that incorrect information has been submitted with the BOIR, the process can be restarted by clicking the “Correct a BOIR” button on the agency’s filing website.

What are the Penalties if a Reporting Entity Fails to File a BOIR?

The CTA stipulates that any reporting entity that willfully violates BOIR reporting requirements are to be assessed a civil penalty of up to $500 each day that the violation continues.

However, none of the May Firm’s clients (that we are aware of) have received warning from FinCEN that they are past filing requirements or have been assessed fines. Given the number of reporting entities that FinCEN must obtain information from, as well as the difficulties in obtaining information from existing companies that must still file, it is likely that it will be some time before the agency reaches out to non-filers and threatens penalties.

That said, it is recommended to comply with BOIR filing requirements and submit beneficial owner information voluntarily. If your business still hasn’t filed its BOIR, there is still time to do so and avoid any penalties.

Prepare Your Organization with Timely BOIR Filing with an Attorney’s Assistance

Filing a BOIR is a relatively straightforward and simple process for reporting entities. However, if your organization is unsure how to proceed with the CTA and with BOIR filing, an experienced business attorney can provide guidance.

Although many questions remain regarding the CTA’s impact on businesses, including when and how FinCEN will enforce BOIR filing, prompt and accurate filing will ensure your organization isn’t surprised by penalties or additional scrutiny from the agency.

Episode 449: How the 2024 Election May Affect Taxes

The 2024 elections have driven intense conversation on a number of issues. Among them are taxes, as both political parties have good reason to pass a new set of tax laws in the near future. Enacted in 2017, many current tax provisions are set to expire a little more than 12 months from now, so the next administration will have to make tax law a focus soon after they settle into the Oval Office.

Let’s review how the 2024 elections may affect taxes, depending on who is in control of the legislative and executive branches.

What Happens if There is No New Tax Bill?

The last major tax bill was passed in 2017, known as the Tax Cuts and Jobs Act. In most instances, it is still the primary tax document governing individual and business tax provisions. And many – but not all – of those provisions are scheduled to sunset at the end of 2025.

That means, theoretically, if no new tax bill is passed by the legislature and signed into law by the President, any provisions that are scheduled to sunset would revert back to what was on the books before the TCJA – effectively back to 2016-era tax provisions.

Thankfully that won’t affect some of the most impactful provisions – corporate tax rates will remain at a flat 21 percent even if the act expires. There are, however, numerous important provisions that would be affected by a pre-2017 rollback, including the child tax credit, the standard deduction, and state and local tax (SALT) deductions.

As both political parties have their own tax agendas to pursue (and constituents to please), it’s highly likely that a new tax bill will be passed before the TCJA expires. As for what a new set of tax laws would include, that would depend on which party has greater control over the legislative process.

What May Happen if the Republicans Largely Influence the Legislative Process During a Tax Bill?

There is a chance that the Republicans will control both the House and Senate following the 2024 elections, which would give them serious negotiation power should a new tax bill come to the floor.

In this theoretical outcome, it’s likely that most of the TCJA provisions set to expire would be extended. That would be the starting point, at least, but it’s likely that certain things like the amount of the standard deduction would be recalibrated to match today’s economic realities. Further, both parties have indicated a willingness to raise the child tax credit in a new tax bill beyond what the TCJA provides for 2025 ($1,700 refundable portion).

In a Republican-majority scenario, the following provisions would probably be preserved along with the tax concepts underpinning the TCJA:

  • A larger standard deduction and no personal exemptions
  • Lower marginal income tax rates at most income levels
  • A larger child tax credit and refundable portion
  • A larger estate tax exemption (the TCJA doubled the pre-2017 exemption)
  • Additional deductions for small businesses (the TCJA allowed sole proprietorships, partnerships and certain corporations to deduct up to 20 percent of pass-through income)

In addition to the above tax-related provisions, there are many questions surrounding tariffs under a potential Trump administration. Putting aside the economic impacts of tariffs, as there are many and they are difficult for any one person to explain, much of the discussion related to tariffs is centered around whether they can be used to fund government programs – perhaps as a way to offset the cost of continuing tax cuts.

What May Happen if the Democrats Largely Influence the Legislative Process During a Tax Bill?

The Democrats may also have the upper hand in tax law negotiations, depending on how the presidential and Senate/House elections shake out. On the campaign trail, Harris has indicated a desire to raise the corporate tax rate up from 21 percent, but likely not back to the pre-TCJA days of a 35 percent tax rate.

Although the Democrats would surely push for a newly authored and conceived bill – not just a continuation of the TCJA – it’s possible that some of the TCJA’s more popular provisions may remain in place. For example, it appears both parties agree on a larger child tax credit, though it’s unclear where each party stands on exact amounts.

An increased corporate tax rate (relative to the current 21%) is also likely under a Democrat-sponsored bill. There’s a significant chance that Democrats would also push to lift the $10,000 cap on the SALT exemption, though this would favor high-income earners in states with higher state taxes.

And if the tax-related ideas set forth in the Inflation Reduction Act are to be furthered in a new Democrat tax bill, certain industries may benefit from tax-friendly provisions, such as those involved in or allied to green manufacturing.

 As a Reputable Tax Law Firm, We Advocate for a Balanced Budget, Regardless of Who is Elected

Everyone should vote for whom they feel will best represent their interests, regarding taxes or otherwise. However, it’s important to keep tax laws in mind when selecting a candidate, especially if your financial situation would be greatly impacted by the election’s outcome.

If you have questions about tax planning with the 2024 elections coming up, consider scheduling a consultation with an experienced tax attorney that can provide in-depth guidance on optimal tax planning strategies, no matter what your tax situation is and no matter who is writing the tax laws come 2025 and beyond.

Episode 448: Buying Assets in Bankruptcy

Under Section 363 of the Bankruptcy Code, interested parties are authorized to buy assets in bankruptcy. By doing so, the purchaser is able to acquire the asset “free and clear,” which means any liens or judgements against the asset are not transferred to the asset (and the party purchasing the asset).

This gives would-be buyers opportunities to acquire valuable assets at a steep discount, but there is a process that must be followed to ensure the transaction is completed in accordance with Section 363.

What Assets Can be Purchased in Bankruptcy?

Few assets are off the table if you’re purchasing them during bankruptcy. What is on sale is a matter of discussion between the debtor company (or individual), the court-appointed bankruptcy trustee and the interested third-party buyer. In general, though, all of the following can be sold or purchased free and clear through bankruptcy:

  • Real property (land, buildings)
  • Equipment
  • Vehicles
  • Inventory
  • Intellectual property, including trademarks and copyrights
  • Client lists
  • Trade secrets and processes
  • Mortgages and lease agreements

In some cases, buyers can even purchase judgements levied against the debtor company, gaining legal grounds to seek repayment from the debtor company.

What is the Process for Buying Assets in Bankruptcy?

Typically, it’s difficult (or outright impossible) to buy assets in bankruptcy due to the presence of liens or judgements against the assets. Tax liens, first liens, second liens and so on determine the priority in which creditors are paid back, should the asset be liquidated. This means if the asset is sold, the liens would then become the responsibility of the new owner, entangling them with creditors they would otherwise rather not deal with.

Instead, third party buyers typically seek a free and clear transaction by leveraging Section 363 of the Bankruptcy Code. Here’s how such a sale under Section 363 would typically proceed:

  • Before bankruptcy is filed – Before the debtor files for bankruptcy, they may start marketing the assets in the pursuit of a “stalking horse.” A stalking horse is the initial bidder willing to enter into a purchase agreement, and like a stalking horse sets the pace for other racehorses, a stalking horse bid sets the terms and structure for subsequent bids on the assets. It also sets the floor for the bid amount, so it gives the debtor a degree of certainty before other potential buyers get involved.

    In addition to seeking a stalking horse, the debtor may also start the selling process before filing bankruptcy to ensure the 363-process can be completed quickly.

  • Once bankruptcy is filed – As soon as bankruptcy is filed, a bankruptcy court and trustee will be involved in the process. To carry out the 363-sale, the debtor will first need to obtain approval from the court to move forward with the bidding process.

    To do so, the debtor and their trustee will file a motion with the bankruptcy court. This motion will seek approval for the bidding process, along with the deadlines for the auction and following sale. If no stalking horse bidder is present at this time, one may be selected to start the process.

  • Approving the bidding process and sale – Once the bankruptcy court receives the motion for a 363-asset sale, it will schedule a hearing, usually a few weeks from the date of the motion. At this hearing, the debtor must provide evidence that the proposed bidding procedures and structure will optimize the sold asset’s value.

    Another hearing will be scheduled once a buyer is identified for the final transaction. At this hearing, the debtor must provide evidence that the selected buyer provided the best or highest bid, and that the auction process is completed without interference from the debtor.

Once the court approves the sale, it can be performed free and clear, so the buyer walks away with a no-strings-attached asset, and the funds raised from the sale are then used to satisfy the debtor’s creditors.

Why Consider Buying Assets in Bankruptcy?

Underpinning every asset purchase in bankruptcy is the pursuit of a good deal. As assets sold in bankruptcy tend to be sold under tight deadlines, debtors are encouraged to liquidate those assets as efficiently as possible to satisfy creditors. As debtors do not have time to perform an extended buyer search, assets are typically sold at a deep discount.

For the buyers, discounted assets can serve strategic or investment needs, including:

  • Acquiring assets to assist with entering the industry – For would-be business owners that want to start a business similar to the debtor company, buying assets in bankruptcy can be used to secure valuable equipment or space at a fraction of the cost.

  • Acquiring land to expand current business operations – If a neighboring business is looking to expand their operations, acquiring the real property (land or facilities) can be the first step in this expansion.

  • Acquiring assets as an investment to “flip” – Sometimes, the best strategic move is to recognize when assets are being sold at well under the value, purchase them and sell them in arbitrage.

Buying Assets in Bankruptcy is a Potentially Lucrative Option for Alert Investors

Buying assets in bankruptcy offers obvious advantages to the buyer, but it must be done in accordance with the Bankruptcy Code to ensure there are no lien-related complications.

If you are looking to acquire assets at an advantage, purchasing them in bankruptcy is an option. However, given the complexities, it is recommended that would-be buyers first consult with an experienced bankruptcy attorney. Their expertise will ensure the transaction is completed in accordance with Section 363, and can also help with vital parts of the process, such as due diligence and asset valuation.