DISSOLVED ENTITIES MUST STILL REPORT OWNERSHIP INFORMATION

Dissolved Entities Must Still Report Ownership Information

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A new wrinkle in the U.S. Treasury requirement to report ownership information may be problematic for recently shuttered companies.

As companies were apparently getting comfortable with ownership reporting requirements of the American Corporate Transparency Act (CTA), the U.S. Treasury has issued new guidance on reporting of companies that have gone out of business.

The Beneficial Ownership Information (BOI) frequently asked questions page from the Treasury’s Financial Crimes Enforcement Network (FinCEN) now has questions and answers concerning the reporting requirements of companies that ceased to exist and that did not complete the process of dissolving prior to the reporting deadlines.

Dates determine reporting

Under BOI requirements, domestic and foreign entities formed or registered to do business in the U.S. (unless exempted) must report information on all individuals with major ownership interests of the company.

BOI must be reported on anyone who owns or controls at least a quarter of the “ownership interests” of a company or for the company “applicant” who directly files or is primarily responsible for the filing of the document that creates or registers the company.

“Interests” include equity, stock or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of these; and any other instrument, contract, or other mechanism used to establish ownership.

“Substantial control” of a company can include is when an individual is a senior officer; has authority to appoint or remove certain officers or most directors; or is an important decision-maker, among other conditions.

The deadlines loom large in new guidelines for some businesses: Companies formed before this year have all of 2024 to report; companies formed this year have 90 days to report; companies formed after this year have only 30 days to report their BOI. Failure to report can carry daily fines of some 600USD or imprisonment.

?(“Domestic” entities are created by the filing with a secretary of state or similar office under the laws of a U.S. state or Indian tribe. “Foreign” entities are those formed under the laws of a country outside the U.S and registered to do business in any U.S. state or Tribal jurisdiction.)

The goal in collecting the information, which will be stored on a non-public?database?accessible by international law enforcement and other officials, is to deter money laundering, especially by overseas entities. FinCEN estimates that the rule will initially impact some 32.6 million companies and some 5 million new companies each decade after that.

FinCEN reportedly claims that as of the end of last April more than a million BOI reports had been submitted.

Dissolved entities

The two new FAQs regarding dissolved entities are under Section C, “Reporting Company,” of FinCEN’s BOI questions page.

Question C.13 reads: “Is a company required to report its beneficial ownership information to FinCEN if the company ceased to exist before reporting requirements went into effect on Jan. 1, 2024?”

FinCEN says a company doesn’t need to report its BOI if that company ceased to exist as a legal entity before Jan. 1, 2024, meaning that it entirely completed the process of formally and irrevocably dissolving. The reasoning: A company that ceased to exist as a legal entity before the beneficial ownership information reporting requirements became effective Jan. 1, 2024, was never subject to the reporting requirements in the first place.

FinCEN also provides the example that although state or Tribal law may vary, a company typically completes “formally and irrevocably dissolving” by filing dissolution paperwork with its jurisdiction of creation or registration, receiving written confirmation of dissolution, paying related taxes or fees, ceasing to conduct any business, and “winding up its affairs” such as by fully liquidating itself and closing all bank accounts.

But if a reporting company continued to exist as a legal entity for any period of time on or after Jan. 1, 2024, and did not entirely complete the process of formally and irrevocably dissolving before that date, that company is still required to report its BOI to FinCEN even if the company wound up its affairs and ceased conducting business before Jan. 1, 2024.

“Similarly,” FinCEN adds, “if a reporting company was created or registered on or after Jan. 1, 2024, and subsequently ceased to exist, then it is required to report its beneficial ownership information to FinCEN – even if it ceased to exist before its initial beneficial ownership information report was due.”

(For specifics on determining when a company ceases to exist as a legal entity, consult the law of the jurisdiction in which the company was created or registered. A company that is administratively dissolved or suspended – because, for example, it failed to pay a filing fee or comply with certain jurisdictional requirements – generally does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent – meaning that many companies that might have slowed their operations in hopes of avoiding BOI reporting still have an obligation to report.)

FinCEN’s question then C. 14 reads, “If a reporting company created or registered in 2024 or later winds up its affairs and ceases to exist before its initial BOI report is due to FinCEN, is the company still required to submit that initial report?

Yes: The Treasury reiterates that reporting companies created or registered in 2024 must report their BOI to FinCEN within 90 days of receiving actual or public notice of creation or registration. Reporting companies created or registered in 2025 or later must report their BOI to FinCEN within 30 days of receiving actual or public notice of creation or registration.

“These obligations remain applicable to reporting companies that cease to exist as legal entities … before their initial beneficial ownership reports are due,” FinCEN says, adding that a reporting company that files its initial BOI report and then ceases to exist has no further requirement to file an additional report with FinCEN noting that the company has ceased to exist.

Observers note that the major challenge to these new requirements is two-fold:

·????? Determining who was a beneficial owner with substantial control over a now dissolved company; and

·????? Verifying that correct, current information on an owner who’s now possibly completely disassociated with a company may be difficult, if not impossible.

Though there have been legal challenges to the constitutionality of the BOI reporting requirement, expect that the requirement will continue and that the U.S. Treasury and other authorities will release subsequent guidance.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author?

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA?Forty?Under 40 Award.?She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world's elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.?