U.S. Beneficial Ownership Information Reporting Begins

The U.S. Treasury recently enacted a new reporting requirement aimed at quashing illicit financial transactions. The agency believes that corporate anonymity is enabling money laundering, terrorism, and drug trafficking. As part of the 2021 Corporate Transparency Act (CTA), certain companies are now required to report information about their beneficial owners. The goal of the new registration requirements is to create a centralized database of beneficial ownership information.

There has been push-back from some lawmakers and small business organizations, citing this as an erroneous regulatory process that just makes life harder for small businesses. Efforts to carve out exceptions or delay the implementation failed. As a result, the Treasury Department officially opened beneficial ownership information reporting on Jan. 1, 2024.

Who is Subject to Reporting?

Generally, a company may need to report beneficial ownership information if it is a corporation, LLC, or other business entity created by the filing with a U.S. secretary of state or a foreign company registered to do business in the United States. Reporting requirements for trusts and other entity types are more dependent on state law.

At first glance, the rules make it look like all businesses are subject to reporting. There are exemptions, however, including nonprofits, publicly traded companies, and certain large operating companies. The FinCEN’s Compliance Guide provides an exemption qualification checklist.

Reporting Timelines and Requirements

First, you only must file an initial report once. There are no annual reporting requirements. Filing deadlines vary based on when a company was created or registered with the relevant secretary of state.

  • Before Jan. 1, 2024, => Deadline of Jan. 1, 2025
  • Between Jan. 1, 2024, and Jan. 1, 2025, => You have 90 calendar days after receiving notice of the company’s creation or registration to file.
  • On or after Jan. 1, 2025, => Deadline is 30 calendar days from the company’s creation or registration.

While there is no annual filing requirement, filing updates are necessary within 30 days of any changes. Ownership activity subject to change reporting includes registering a new business name, a change in beneficial owners, or a beneficial owner’s name, address, or unique identifying number previously provided.

What Do You Need to Report?

Beneficial ownership reporting must identify the following data.

At the company level, it must report:

  • Company name, both legal and trade (if applicable)
  • Company physical address (no post office boxes)
  • Jurisdiction of formation or registration
  • Taxpayer Identification Number

For each beneficial owner, the following must be reported:

  • Name
  • Date of birth
  • Address
  • Driver’s license, passport, or other acceptable identification

Depending on the situation, there also may be reporting requirements about the company applicant. This is generally a person involved in the creation or registration of the company. The same four pieces of data as for a beneficial owner would need to be provided.

As a general rule, a beneficial owner is someone who controls the company or owns 25 percent or more.

The full definition and all exemptions to whom constitutes a beneficial owner or company applicant can be found here.

No financial information or details about the business operations are required.

How and Where to File

You have the option to file online or via PDF. Filing online can be done through the Beneficial Ownership Information (BOI) E-Filing System on the FinCEN site.

There is no cost to file.

Conclusion and Cautions

While the reporting is simple, the requirements should not be taken lightly. Failure to report could result in civil penalties of up to $500 per day and criminal charges of up to two years imprisonment and a fine of up to $10,000.

The message is this: Don’t wait – and don’t forget to file!

Actions Lottery Winners Should Consider

What to do if you win a lotteryWe all have those days when we dream of striking it rich with a winning lottery ticket. Never having to work again while living a life of luxury. While your chance of finding a four-leaf clover is higher than winning the lottery, we can still dream, right? And while we are dreaming, let’s talk about the best ways to deal with landing such a large sum of cash. And since lottery winners have a limited time to claim their prize, it’s important to take prudent steps when managing the money.

How Much Do Winners Actually Take Home?

Let’s take a look at actual prize amounts from recent winnings. The October 2023 Powerball jackpot of $1.2 billion translated to a cash value of $551.7 million. Depending on what the winner decides – either taking the lump sum or opting for a multi-decade annuity – they have a serious decision to make.

It’s important to consider inflation factors if choosing the multi-decade annuity option. For example, when it comes to 30 payments taken over 29 years, the first consideration is to determine if there’s a 5 percent increase in the amount for each subsequent year. However, it’s important to keep inflation and the value of money going forward in mind.

For example, between March 2021 and March 2023, the average monthly inflation rate was 5 percent or higher, according to Statista Research Department. It peaked during June 2022 at 9.1 percent on a monthly basis. If the lump sum was taken before inflation increased during the post-COVID-19 reopening, or the annuity was increased by 5 percent, lottery winners without a plan to preserve and increase their earnings would have seen their money’s purchasing power decline.

Another thing to consider is how to legally navigate the tax code. For example, when it comes to federal taxes, 24 percent is automatically withheld. According to the 2024 Federal Tax Code, large winnings will put the winner in the 37 percent tax bracket. If the winner is single or married, the 37 percent bracket kicks in at $578,125 and $693,750, respectively. Additionally, winners also are required to determine compliance with state, county, city, etc. taxes. State taxes can vary greatly; looking at you: Pennsylvania at 3.07 percent, and New York at 10.9 percent.

When it comes to being generous through philanthropy, winners can work with their legal and financial professionals to determine how to offset taxes. This can take the form of direct donations, creating a donor advisor fund (DAF) to get the tax benefit immediately, especially if the lump sum is taken, but also if an annuity is taken. With 2023’s standard deduction threshold of $13,850 (single) and $27,700 (married couples), winners might consider how to make charitable donations part of a tax reduction plan.

Another question to ask is whether establishing a trust would be helpful when sorting out one’s distribution of assets. If a winner dies intestate (without a will), the state of that person’s residence will determine who gets your money – regardless of who you may have wanted to receive it.

Similarly, setting up a trust may be beneficial for both claiming the lottery winning anonymously, and it can help determine how to give money to family members. A trust can be set up for a family member or a pet’s care and can be conditional on releasing the funds when the individual reaches a certain age.

While these steps are not comprehensive, and each winner will have unique circumstances, there are many legal and financial considerations to think about immediately upon winning and before claiming a jackpot.

Sources

https://www.irs.gov/credits-and-deductions-for-individuals

https://www.statista.com/statistics/273418/unadjusted-monthly-inflation-rate-in-the-us/

March Financial To-Do List

March Financial To-Do ListReady or not, spring is right around the corner, and it’s the perfect time to get in fiscal shape for the rest of the year. However, tax preparation isn’t the only thing to put on your list. Here are a few other must-dos to keep you financially fit.

Purge Your Papers

After you finish your taxes, shred papers you don’t need, like credit card or ATM receipts. Then organize the papers you need to keep, such as car titles, loan paperwork, retirement statements, etc. Store them in a fireproof safe or password-protected file. You’ll also want to deactivate accounts (and apps) you no longer use. When you do this and rid yourself of that extra paper, as well as eliminate related files on your computer, it helps minimize the risk of your personal data being stolen should you or any institutions you’re registered with get hacked. Now, all of these tasks assume you’ve already filed with Uncle Sam and aren’t filing an extension. If you are filing an extension, that’s the next task on your list.

File a Tax Extension

And you’ll probably want to do so with E-File. But know this: an extension of time to file your return does not grant you any extension of time to pay your taxes. You should estimate and pay any owed taxes by your regular deadline to help avoid possible penalties. Finally, you must file your extension request no later than the regular due date of your return. For more info, check out this helpful page.

Evaluate College Aid Offers

If you have a high school senior, March is the time that they learn whether or not they’ve been accepted to colleges. It’s also the prime time to figure out how much money you’ll need for their education. If your child has been lucky enough to have received a financial aid letter, you’ll want to sit down and calculate how much cash you’ll need to supply or borrow. Generally, the universities include info in their letters about federal loans that you qualify for, so you can start that process. However, if you don’t like the offer that’s been extended, you can appeal it. Some schools may increase their offer.

Consider Buying Flood Insurance

April showers are just up ahead, but there are other forces of nature to contend with in spring: hurricanes, mudslides, and melting snow from freak freezes out of nowhere. All of these weather events breed water – and in some cases, too much of it. Check your homeowner’s insurance first to see if these acts of God are covered. If floods aren’t included, then flood insurance is something to look into. Even if you don’t live in a high-risk area, according to the National Flood Insurance Program, 20 percent of claims come from low- to moderate-risk areas. While annual premiums can run around $700 to 800 a year if you live in a low- to moderate-risk area, this could be less. Usually, there’s a 30-day waiting period before the policy kicks in, so it makes sense to buy it before you really need it.

Score on Deep Discounts

Now that winter is a distant memory, retailers are getting rid of cold weather inventory in March. Think winter coats, cozy clothing, and space heaters, for starters. Replacement windows and air purifiers are also priced low. And to get in the mood for spring cleaning, you may find vacuum cleaners on sale. Look for price cuts on (or around) St. Patrick’s Day, too. If you want to find more deals, you don’t need the luck of the Irish – just Google “March markdowns” and dive in.

Getting organized in March sets a great precedent for the rest of the year. Don’t miss this opportunity to get your financial house in order for the coming months.

Sources

https://www.consumerreports.org/financial-planning/march-financial-to-do-list/

https://www.bankrate.com/insurance/homeowners-insurance/cost-of-flood-insurance/#:~:text=The%20average%20U.S.%20homeowner%20may,on%20your%20individual%20rating%20factors.

Deepfakes and Social Engineering: The New Face of CEO and CFO Fraud

What is a Deepfakes and Social EngineeringTechnological advancements have ushered in a new era of cybercrime, with deepfakes and social engineering tactics at the forefront of fraudulent activities. CEO and CFO fraud has become increasingly widespread, posing significant threats to organizations worldwide.

Understanding CEO and CFO Fraud

CEO and CFO fraud involves cybercriminals impersonating executives to manipulate employees to transfer funds or sensitive information. These scams often rely on social engineering techniques to deceive unsuspecting victims. While traditional phishing emails used in business email compromise (BEC)might use generic language, sophisticated cybercriminals now leverage deepfakes to make their schemes more convincing. They exploit human trust and undermine traditional security measures.

The Rise of Deepfakes

Deepfakes are highly realistic manipulated media created using deep learning technology, often involving video or audio recordings that appear genuine. With the aid of generative artificial intelligence (AI) tools, deepfake technology has become increasingly sophisticated. This is because the synthetic media generated using AI can realistically replicate a person’s voice, appearance, and mannerisms. These advancements in AI technology have made it increasingly challenging to distinguish between real and manipulated content, amplifying the effectiveness of social engineering tactics.

It is worth noting that deepfakes alone are not enough to guarantee success for these scams. Social engineering plays a crucial role in manipulating victims and exploiting their vulnerabilities. The fraudsters deploy various tactics, including creating a sense of urgency, leveraging trust and authority, and targeting specific individuals with access to sensitive information or decision-making authority.

A notable instance of this fraud is that of a Hong Kong-based multinational firm that lost $25 million after being duped by a deepfake impersonation of their CFO. Using a realistic video call, the scammer instructed an employee to transfer the funds to a supposedly urgent business acquisition in China. Unfortunately, the employee was unaware of the deepfake and fell victim to the elaborate scam.

In another instance, a cybercriminal impersonated the CFO of a prominent financial institution using a deepfake audio recording. The fraudulent call, which sounded identical to the CFO’s voice, instructed an employee to disclose sensitive client information. Believing it was a legitimate request from the CFO, the employee complied, unintentionally compromising confidential data and exposing the organization to regulatory penalties and lawsuits.

Mitigating the Threat

Organizations must implement robust cybersecurity measures and employee training initiatives to deal with the rising threat of CEO and CFO fraud facilitated by deepfakes and social engineering. Below are some strategies to consider:

  • Employee education and awareness: Companies can hold regular training sessions to educate employees about the dangers of social engineering tactics and how to identify suspicious communications, including deepfake content. They also can encourage vigilance and emphasize the importance of verifying requests, especially those involving financial transactions or sensitive information.
  • Multi-factor authentication (MFA): Businesses are implementing MFA protocols for financial transactions and accessing sensitive data. By requiring multiple verification forms, such as passwords, biometrics or one-time codes, MFA adds an extra layer of security that can help hinder unauthorized access, even if credentials are compromised.
  • Strict verification procedures and zero-trust policy: Organizations can establish strict verification procedures for any requests involving changes to payment instructions or the disclosure of sensitive information. Employees must verify such requests through multiple channels, such as phone calls or in-person meetings.
  • Advanced detection technologies: Companies also might invest in advanced detection technologies capable of identifying deepfake content and other forms of manipulated media. These tools use AI algorithms to analyze multimedia content for signs of tampering or manipulation, helping organizations identify potential threats before they escalate.

As deepfake technology advances, these scams will likely become even more sophisticated and challenging to detect. As Gartner predicts, by 2026, identity verification and authentication solutions such as face biometrics could become unreliable due to AI-generated deepfakes. Therefore, it is crucial to acknowledge the broader implications of deepfakes and social engineering. Regulatory bodies, technology companies, and other concerned institutions must collaborate to develop comprehensive frameworks that address the ethical use of AI, establish clear guidelines for deepfake technology, and enhance overall cybersecurity resilience.

Conclusion

As deepfakes and social engineering tactics continue to evolve, the threat of CEO and CFO fraud is a real challenge for organizations of all sizes. Sophisticated technology and deceptive practices have made it easier than ever for cybercriminals to impersonate executives and manipulate employees into unknowingly facilitating fraudulent activities. Organizations must adopt proactive approaches to mitigate the risks associated with deep fake-enabled fraud and to safeguard their assets and reputations in an increasingly digital landscape.

Contingent Liability Defined

Contingent Liability, What is Contingent LiabilityAs the name implies, a contingent liability for a business does not always happen and depends on how the future unfolds. When it comes to a business analyzing a contingent liability, it focuses on the probability of the business realizing it, the time frame within which the liability might occur, and the accuracy of the contingent liability’s estimated amount.  

When to Record and Notify of Contingent Liabilities

Projected contingent liabilities are typically recorded if the contingent liability will materialize and can be reasonably projected with a high level of accuracy. Examples include a company making good on a large-scale product warranty, a business facing a government probe or ongoing litigation, or an organization having to satisfy a guarantee on debt.

When recording contingent liabilities, businesses must adhere to three accounting principles from generally accepted accounting principles (GAAP) and the International Financial Reporting Standards (IFRS):

1. The Full Disclosure Principle

This requires consequential and pertinent financial details and essentials to be documented thoroughly in financial statements. Relevant fiscal circumstances that have a reasonable likelihood to negatively impact a business’s future net profitability, cash flow, and assets highlight the importance of why a company’s solvency is the primary focus of this tenant.   

2. The Materiality Principle

This focuses on the necessity of financial statement disclosure. Preparers of the financial statements must determine if including financial information (or not) on the business’s financial statements would give interested parties substantive information to help them determine whether or not to engage with the company.

3. The Prudence Principle

This last principle focuses on ensuring income and assets are reported accurately, along with requiring liabilities and expenses not to be reported too low. When applying this principle through the lens of contingent liabilities, if there’s more than a 50 percent chance of the event occurring, it and the associated expense are documented. Recording the liability gives a fair reporting of the expenses and obligations.  

Naturally, if there’s a strong likelihood of reducing a business’s ability to sustain profitability, it also can reduce investor interest in buying part (or all) of the company. Similarly, while being transparent by disclosing contingent liabilities, a business might not be able to secure lending if the lender doesn’t have faith that the debt will be repaid according to the loan’s terms.

Contingent liabilities that are expected to occur/settle in the short term are usually more impactful. Conversely, contingent liabilities that are anticipated to be settled over the long term are less impactful because there’s a smaller chance of the event actually materializing.     

Another consideration when it comes to generally accepted accounting principles is that there are three categories of contingent liabilities, which are all based on the probability of it occurring.

  1. If the likelihood of the liability arising is more than 50 percent and the loss can be projected with relative certainty, this is recorded as an expense on the income statement and a liability on the balance sheet. This also can be referred to as a probable contingent liability that can be reasonably estimated (and reflected on financial statements).
  2. If the contingency meets one, but not both, of the criteria of a high probability contingency, the contingent liability is required to be documented in the footnotes of the financial statements. This also can be referenced by stating that the liability is as likely to occur as not.
  3. If a contingent liability does not meet either of the first two conditions, the rest fall into this category. Since the probability of a cost arising due to these liabilities is highly unlikely, and while reporting these in financial statements is not required, companies sometimes do disclose them.

With contingent liabilities being naturally uncertain, these approaches give business’ some level of certainty to evaluate and make reasonable judgment calls to manage internal and external expectations.