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Category: Tax & Wealth Management

Corporate Transparency Act Compliance for ESOPs


October 31, 2024

CLIENT ALERT | BUSINESS SERVICES | OCTOBER 2024

Corporate Transparency Act Compliance for ESOPs

The Corporate Transparency Act (CTA), effective January 1, 2024, introduces new reporting requirements for certain corporations, limited liability companies, and other entities, including those owned by Employee Stock Ownership Plans (ESOPs). Entities formed before January 1, 2024, must file an initial Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. Understanding the CTA can help companies avoid significant penalties and ensure the continued operation of your ESOP.

Reporting Requirements

The CTA mandates that “reporting companies” provide specific identifying information. A reporting company includes any entity (corporation, limited liability company, or similar entity) created by filing a document with a Secretary of State. Reporting companies must disclose:

  1.  The legal name, trade name (if applicable), principal place of business, and taxpayer identification number.
  2.  Details of individuals who exercise substantial control or own/control 25% or more of the entity’s ownership interests. This includes their legal name, date of birth, residential address, and a unique identifying number from an acceptable identification document or a FinCEN identifier.

Penalties for Non-Compliance

Failure to comply may result in significant penalties, including fines up to $10,000 and imprisonment for up to 2 years for intentionally providing false or misleading information.

Legal Challenges and Compliance

Despite ongoing legal challenges questioning the CTA’s constitutionality, the reporting deadline remains unchanged. As of July 2024, only 2.7 million of the estimated 31 million initial filings have been received. Companies should prepare to file by the deadline.

Exemptions

The CTA exempts 23 types of entities, including large operating companies with more than 20 full-time employees and annual gross receipts or sales of at least $5 million. However, this exemption is contingent on all employees being employed by the same entity, which can pose issues for ESOPs operating under a holding company structure.

If a holding company does not meet the large operating company criteria, it may not be exempt. However, if a holding company qualifies, the subsidiary company might be exempt.

ESOP Trustees: Individual trustees may not qualify for exemptions, but large institutional trustees might meet the large operating company exemption, allowing the holding company to qualify as a subsidiary.

Recommendations

Given the complexities and ambiguities, consider the following:

  • File the BOIR by the deadline;
  • Submit the BOIR for the holding company and any other affected entity by January 1, 2025, (unless a clear exemption applies);
  • Consult with a professional to ensure compliance and determine if any exemptions are applicable; and
  • Prepare for ongoing reporting obligations and potential updates or corrections.

If you have any questions regarding the matters covered in this alert, please reach out to the lawyer(s) listed below or your usual Walter Haverfield contact.

Alex Kuzmik | Associate | Tax & Wealth Management | 216.619.7883 | akuzmik@walterhav.com

Tim Jochim | Partner | Business Services | 614.246.2152 | tjochim@walterhav.com

This communication is for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice. This may be considered attorney advertising in some jurisdictions.

The Corporate Transparency Act and Estate Planning


August 1, 2024

CLIENT ALERT | TAX & WEALTH MANAGEMENT | AUGUST 2024

The Corporate Transparency Act and Estate Planning

The Corporate Transparency Act (CTA), enacted to combat financial crimes such as money laundering and terrorism financing, mandates that small businesses disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). However, concerns are rising as businesses may not be adequately prepared for compliance. As of July, FinCEN has received only 2.7 million of the estimated 31 million Beneficial Ownership Information Reports that must be filed by January 1, 2025. In spite of this, Treasury Secretary Janet Yellen reiterated that the reporting deadline remains unchanged. Secretary Yellen noted, “FinCEN believes that the time frame is adequate for companies in existence before this year.”

CTA Impact on Estate Planning

The CTA’s impact extends to estate planning as well. Estate planning attorneys often help clients create privately held companies, for the purposes of owning certain assets, and ownership in these assets are transferred to trusts. Trusts are not “reporting companies” under the CTA. However, they are required to disclose information about their beneficiaries and any individuals with substantial control or ownership over the reporting companies owned in the trust. The term “substantial control” is defined broadly. It can encompass trustees, trust protectors, and beneficiaries with significant influence over the trust, as well as individuals indirectly connected to the trust who exercise substantial control through their roles within the company. When a business owner dies, the responsibility for CTA compliance falls to the person managing the decedent’s affairs, usually an executor or trustee.

Challanges to the CTA

Legal challenges to the CTA are emerging. A recent Alabama court ruling questioned the constitutionality of certain provisions of the Act, raising uncertainties about its enforcement in different jurisdictions. Similar cases have been brought in Massachusetts, Texas, Maine, Michigan, and Ohio. Despite these challenges, businesses must prepare to meet the reporting requirements and deadlines.

Conclusion

Lack of succession planning could result in crippling penalties and administrative chaos under the CTA. In extreme cases, non-compliance could jeopardize the ability of the business to conduct day-to-day activities. But with proper estate planning, it is possible to reevaluate the structure and management of the trust, safeguarding the estate and the business against the risk of unexpected legal and financial repercussions. Clear identification of beneficial owners is now crucial for accurate estate planning.

If you have any questions regarding the matters covered in this alert, please reach out to the lawyer(s) listed below or your usual Walter Haverfield contact.

Alex Kuzmik | Associate | Tax & Wealth Management | 216.619.7883 | akuzmik@walterhav.com

Sebastian C. Pascu | Partner | Tax & Wealth Management | 216.619.7870 | spascu@walterhav.com

This communication is for general information only. It is not a full analysis of the matters presented and should not be relied upon as legal advice. This may be considered attorney advertising in some jurisdictions.

IRS Extends Tax Filing Deadline

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March 18, 2021

March 18, 2021 

*Update: Ohio updated its tax filing deadline to May 17, 2021, however first quarter estimated income tax payments for tax year 2021 are not impacted and must still be made by April 15, 2021.

The Internal Revenue Service (IRS) is delaying this year’s deadline to file individual federal tax returns (Form 1040). The new deadline is May 17, 2021. The extension is automatic, and individual taxpayers do not need to file any forms or contact the IRS to qualify. However, states set their own deadlines, and Ohio’s deadline remains April 15, 2021, until further guidance is issued. Despite the new IRS deadline, the IRS is urging taxpayers to consider filing as soon as possible. The agency is delayed in processing returns already filed, and by further delaying filing, taxpayers entitled to a refund may experience longer waits to receive those refunds.

Additionally, individual taxpayers (including those who pay self-employment tax) can postpone federal income tax payments for the 2020 tax year to May 17, 2021, without penalties and interest, regardless of the amount owned. Penalties, interest, and additions to tax begin to accrue on unpaid balances as of May 17th. But, estimated tax payments that are due on April 15, 2021, remain due on April 15th.

We will continue to monitor state and federal tax filing deadlines and update you if there are any further changes. If you have any questions in the meantime, please don’t hesitate to contact us here. We are happy to help.

Giulia Di Cenzo is an associate at Walter | Haverfield who focuses her practice on tax and wealth management. She can be reached at gdicenzo@walterhav.com or at 216-658-6230.

Lacie O’Daire is chair of the Tax and Wealth Management Group at Walter | Haverfield. She can be reached at lodaire@walterhav.com and at 216-928-2901.

Paycheck Protection Program: IRS Confirms Expenses Are Not Deductible

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November 19, 2020

November 19, 2020

Our firm continues to stay on top of the Paycheck Protection Program (PPP) and its impact on our business clients, and individual owners of flow-through entities. With some very timely guidance, the U.S. Treasury Department and IRS released direction clarifying the tax treatment of expenses where a PPP loan has not been forgiven by the end of the year, which is most of our clients.

Background Information on PPP

On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (“COVID-19”) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all states, territories, and the District of Columbia. With the COVID-19 emergency, many small businesses nationwide were experiencing economic hardship as a direct result of the federal, state, tribal, and local public health measures that were being taken to minimize the public’s exposure to the virus. These measures, some of which were government-mandated, have been implemented nationwide and include the closures of restaurants, bars, and gyms. In some cases, other measures such as stay-at-home orders were implemented, resulting in a dramatic decrease in economic activity as the public avoided malls, retail stores, and other businesses.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Pub. L. 116-136) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The SBA received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency.

Section 1102 of the CARES Act temporarily permitted the SBA to guarantee 100 percent of 7(a) loans under a new program titled the “Paycheck Protection Program.” Under the PPP, the borrower must use loan proceeds for certain qualifying expenses, including payroll costs, payments of covered rent obligations, and covered utility payments. Section 1106 of the CARES Act provided for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

On April 24, 2020, the President signed the Paycheck Protection Program and Health Care Enhancement Act (Pub. L. 116-139), which provided additional funding and authority for the PPP. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of the PPP relating to the maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans. On July 4, 2020, the President signed into law S. 4116, which reauthorized lending under the PPP through August 8, 2020 (Pub. L. 116-147).

Deductible or Not Deductible, that is the Question?

According to the IRS, since businesses are not taxed on the proceeds of a forgiven PPP loan, the qualifying expenses are not deductible. The IRS rationalizes this position by claiming that this results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.

In its recent ruling, the IRS ultimately concluded that if a business reasonably believes that a PPP loan will be forgiven in the future, qualifying expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Therefore, the IRS encourages businesses to file for forgiveness as soon as possible.

According to the IRS, in the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses in the future.

Conclusion

In sum, although this guidance represents much-needed guidance and clarity, it was not unexpected. We have been advising our clients for some time to ensure they are planning for the expectation that certain expenses paid related to the PPP will not be deductible and therefore will result in an increase in tax liability. But, let’s also remember that each of the businesses and their owners benefited tremendously from the use of the PPP loan proceeds. We are working diligently to stay on top of these changes, and will follow-up on any additional guidance.

We would encourage you to review the IRS Revenue Ruling here.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

Ohio’s Proposed Tax Amnesty Program Offers Settlement Opportunities for Individuals and Businesses with Tax Liabilities

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June 12, 2020

 

June 12, 2020

The Ohio House of Representatives has unanimously approved a new tax amnesty proposal (HB 609), would raise revenues for the state and provide relief for taxpayers while Ohio’s economy recovers from the COVID-19 pandemic. This program, which is now under review by the Ohio Senate’s Ways and Means Committee, presents opportunities for our clients to minimize the costs of unreported and underreported tax liabilities.

Tax amnesty programs relieve taxpayers who owe past-due taxes and fees while raising revenue for the taxing authority. This creates a win-win situation. Without such programs, taxpayers who owe must pay penalties and accrued interest.

In economic downturns, tax planning is critical to ensure the long-term health of a business. Therefore, it’s important that our clients avail themselves of voluntary disclosure programs and tax amnesty programs offered by federal, state, and local taxing authorities to minimize the impact of delinquent or unpaid tax liabilities.

Details of the bill are as follows:

The Amnesty

The tax amnesty bill would establish an amnesty period during which taxpayers with unreported or underreported taxes could discharge their tax debts by paying the delinquent tax without paying the penalties and interest (the “amnesty”). The three-month, temporary amnesty period would run from January 1, 2021, to March 31, 2021.

Under this proposal, the Tax Commissioner must waive penalties and accrued interest if an eligible taxpayer pays the full amount of included taxes or fees during the amnesty period. The tax amnesty bill also authorizes the Commissioner to require a taxpayer to file returns or reports, including amended returns or reports.

In addition to the waiver of penalties and interest, the taxpayer would be immune from criminal prosecution or any civil action concerning the taxes paid. Further, no assessment may be issued against the taxpayer for that tax or fee.

Covered Taxes under the Proposed Tax Amnesty Bill

The amnesty only applies to covered taxes and fees and does not apply to local taxes.  Covered taxes include:

  • Ohio income tax
  • Commercial activity tax
  • State sales and use taxes
  • Financial institutions tax
  • Public utility excise taxes
  • Kilowatt hour tax
  • MCF (natural gas) excise tax
  • Insurance premium taxes
  • Cigarette/tobacco/vaping excise taxes
  • Alcoholic beverage taxes
  • Motor fuel excise tax
  • Fuel use tax
  • Petroleum activity tax
  • Casino wagering tax
  • Severance taxes
  • Wireless 9-1-1 charges
  • Tire fees
  • Horse racing taxes

The amnesty does not apply to school district income taxes or county and transit authority sales and use taxes. Further, the amnesty only applies to unreported or underreported taxes that were due and payable as of the bill’s effective date. It does not apply to any taxes if the Ohio Department of Taxation has issued a notice of assessment or audit, issued a bill, or if an audit has been conducted or is pending.

Past Tax Amnesty Programs

Ohio has conducted several general tax amnesty programs in the past. Ohio’s most recent tax amnesty program, conducted from January 1, 2018, through February 15, 2018, raised $14.3 million for Ohio’s coffers while it decreased the cost of compliance for taxpayers with delinquent or unreported taxes. Ohio also conducted tax amnesties in 2002, 2006, and 2012.

Utilizing tax amnesty and voluntary disclosure programs is one of several strategies to minimize the impact of falling behind on tax obligations, and Walter | Haverfield’s attorneys are monitoring all such opportunities. Let our attorneys apply their experience, passion, and attention to detail to help develop the best strategies to minimize the impact of tax liabilities.

To read more about this topic, click here for a Law 360 article titled “Ohio Oks Tax Amnesty To Boost Pandemic Recovery”

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Medical Providers Receive Pandemic-Related Federal Stimulus Payments


April 17, 2020

April 17, 2020

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the U.S. Department of Health and Human Services (HHS) began distributing $30 billion on Friday, April 10, 2020 to U.S. medical providers who received Medicare fee-for-service (FFS) reimbursements in 2019. The funds, which are not loans and do not need to be paid back, are being directly deposited into providers’ accounts.

Providers are receiving about 1/16th of his/her Medicare FFS reimbursements in 2019 in the form of a stimulus payment. If a provider did not bill Medicare in 2019 for FFS, the provider will not receive money from this distribution.

The funds are meant to be used to cover health care-related expenses or lost revenue due to the coronavirus pandemic. Examples of expenses identified in the CARES Act include building or construction of temporary structures, leasing of properties, buying medical supplies, personal protective equipment and testing supplies, increasing one’s workforce and holding trainings, and retrofitting facilities. However, providers can essentially use the funds as they see fit, as long as they do not use them to reimburse expenses or losses that have been reimbursed from other sources, or that other sources are obligated to reimburse.

Providers are required to document how the stimulus payment is used. They will also be required to submit reports to ensure compliance with the payment. But details of what those reports will entail have not been made available yet.

Additionally, those who receive stimulus payments from HHS are not exempted from receiving other forms of relief.

The $30 billion distribution is part of $100 billion relief fund appropriated in the CARES Act to the Public Health and Social Services Emergency Fund (PHSSEF), also called the CARES Act Provider Relief Fund. HHS intends to distribute more relief funds in the future, particularly to providers hit hard by the pandemic as well as those who serve rural areas, the Medicaid population and the uninsured, and those with lower shares of Medicare FFS reimbursement.

If you have further questions, please reach out to us here. We are happy to help.

Lacie O’Daire is chair of the Tax and Wealth Management Group at Walter | Haverfield. She can be reached at lodaire@walterhav.com and at 216-928-2901.

 

 

Walter | Haverfield Offers Online Notary Services


March 30, 2020

Updated May 312, 2020 

If you are a Walter | Haverfield client who needs documents notarized, we are here to help. We are certified through the Ohio Secretary of State to notarize documents online for individuals in and outside the State of Ohio. No in-person meeting is necessary. Details on what is needed in order to participate in an online notary service as well as a description of the process are below.

Participant Requirements:

  • Access to the following: a computer, internet and webcam
  • Driver’s license or passport
  • Digital version of documents that need to be notarized
  • Must be a Walter | Haverfield client

E-Notary Process (takes about five minutes):

  • A link to join the e-notary process is sent to the participant
  • Once a participant clicks on the link, the e-notary software is launched online and a credential analysis begins
  • During the credential analysis process, the participant uploads his/her driver’s license or passport
  • The software analyzes the license/passport and asks a series of questions to verify one’s identity
  • An e-signature is adopted, and the Walter | Haverfield notary digitally applies the seal and signature to the document(s)
  • An email is then sent to the participant with a copy of the notarized documents

Ohio is one of 36 states that allows documents to be e-notarized. In Cuyahoga County, there are about two dozen e-notaries.

Please note that online notary services are not available for depositions.

We look forward to maintaining our strong working relationship with you during this time and keeping in close contact via phone, email or video conference. If you are a Walter | Haverfield client in need of our online notary service or have questions, please email us here. Individuals who are not Walter | Haverfield clients may visit sites like notarize.com.

 

Federal and Ohio Tax Filing Deadline Moved to July 15


March 17, 2020

Updated March 30, 2020

In response to Covid-19 (coronavirus), the Secretary of Treasury released guidance on March 20, 2020 providing for an extension to file tax returns for 90 days aligning the due date with the previously extended due date for tax payments. In addition, the IRS and Treasury expanded the earlier guidance permitting unlimited tax deferral, interest and penalty free, for individuals and business for the 90-day extended period.

On Friday, March 27, 2020, Tax Commissioner, Jeff McClain, announced that Ohio will be following the federal government guidance in extending from April 15 to July 15 the deadline to file and pay Ohio state tax. No interest and penalties will be charged against any tax-due payments during the extended period. This delay will apply to the Ohio individual income tax, the school district income tax, the pass-through entity tax and some municipal net profits tax.

The announcement did not include information regarding any other taxes such as sales and use taxes, commercial activity taxes, withholding taxes.

We will continue to monitor the development and will keep you posted.

Sebastian Pascu is an associate at Walter | Haverfield who focuses his practice on Tax & Wealth Management. He can be reached at spascu@walterhav.com or at 216-619-7870.