Today, FinCEN announced that it will not issue any fines or penalties or take any other enforcement actions against any companies based on any failure to file or update beneficial ownership information (BOI) reports pursuant to the Corporate Transparency Act by the current deadlines. No fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim final rule have passed. This announcement continues Treasury’s commitment to reducing regulatory burden on businesses, as well as prioritizing under the Corporate Transparency Act reporting of BOI for those entities that pose the most significant law enforcement and national security risks.
​
No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines, recognizing the need to provide new guidance and clarity as quickly as possible, while ensuring that BOI that is highly useful to important national security, intelligence, and law enforcement activities is reported.

The Corporate Transparency Act is back together with the Beneficial Owner Information reporting. The new date to register is March 21, 2025, but FinCen may modify that deadline before March 21, 2025, and may adopt regulations for businesses that are a low risk for criminal financial transactions, but do not count on it doing so.  
​
If you have not already done so, non-exempt organizations must register.  Exemptions from BOI was given to the litigants in National Small Business United v. Yellen also have a stay from BOI. 
If you need assistance in filing your form or amending your form, call us.  

​On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued an nationwide injunction that barred the Department of the Treasury and its FinCEN from enforcing the deadlines for non-exempt companies to register under the Corporate Transparency Act (CTA) and to file the Business Owners Information (BOI) forms with FinCEN  The Federal government appealed that decision to a higher court, the U.S. Court of Appeals for the Fifth Circuit.  On December 23, 2024, the U.S. Court of Appeals’ motion panel reversed the U.S. District Court’s issuing of the injunction, and it vacated the lower court’s injunction.  Thus, non-exempt companies had to register and file the BOI, but with new deadlines established by FinCEN.  However, on December 26, 2024, at approximately 8:15 PM, a new panel of the Fifth Circuit reversed the motions panel’s decision and reinstated the original injunction issued by the District Court. 
 
McGeehan Pascale, PLC will continue tracking this case for its clients.  Significant changes will be posted on its web site.  For now, no company is required to register or file the BOI.  For the clients that have registered and filed BOI, this does not affect you. 

​In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
---
On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.
 
Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.
 
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.

​On March 1, 2024, a decision was handed down by Judge Liles C. Burke, a Judge of the United States District Court for the Northern District of Alabama, ruling that the Corporate Transparency Act is unconstitutional because it exceeds the federal government’s authority.  The government’s argument for its authority to promulgate the Act was based on the foreign affairs power (since the CTA’s main purpose is to prevent money laundering, especially by offshore actors) and the Commerce Clause.  In light of the fact that the CTA requires reporting by entities that have registered with state Secretaries of State, Virginia State Corporation Commission, Maryland SDAT, regardless of the localized nature of their activities, the court found both of the government’s arguments unconvincing.  I expect the decision will doubtless be appealed to the11th Circuit and the written opinion is unclear whether the holding will be national.  The case is unreported.  The opinion can be found at National Small Business United et. al v. Yellen et. al, Case No. Number 5:22-cv-1448 (N.D. Alabama J. Burke).

                                                 Regarding:  The Corporate Transparency Act (“CTA”)

You may have heard of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) Customer Due Diligence Requirements CTA.  Because you are either a corporation or limited liability company, we wanted you to be aware of how the Corporate Transparency Act (CTA) will impact you and any closely held business with which you are associated.  Second, there is no need for panic.  Not yet!  Third, there is good information for now on Beneficial Ownership Information Reporting | FinCEN.gov and a booklet that answers many questions.  Nevertheless, unless your company is exempt, you must file and regularly update the information. 
 
EXECUTIVE SUMMARY.

The goal of the CTA registry is to help combat the abuse of shell companies, which per FinCEN has for decades allowed money launderers, tax evaders, and other criminals to maintain anonymity.  The Rule was a sweeping and significant update to the U.S. anti-money laundering laws, estimated to affect over 32 million entities by requiring new reports of Beneficial Owners.  It is to be seen how the Treasury will be able to process 32 million forms.

The CTA became law in January of 2021, but its regulations at 31 Code of Federal Regulations were delayed.  On September 29, 2022, the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued its Final Rule (“the Rule”)[1] implementing the CTA’s requirements to report Beneficial Ownership information which will be part of a registry.  The CTA is effective on January 1, 2024, The CTA imposes the following mandatory requirements:
 
1.   All “Reporting Companies” must report to FinCEN specific information about the Company, all Beneficial Owners and its Reporting Companies on Forms to be provided by FinCEN; These forms will be found on FinCEN’s website;
2.   All Reporting companies must initially file a report and all reporting companies must report all changes to the above information within 30 days of each such change on forms to be provided by FinCEN;
3.   To file a change, a “Reporting Company” must first obtain a FinCEN identifier number that will be used for all reports.  The process for obtaining a FinCEN number can be found online.  This number is not your Employer Tax Identification number.
 
All Companies will also want to change their core corporate documents to obligate all Beneficial Owner to provide the company with all changes to the reported information and to appoint a person who is responsible for the collection and reporting of the initial and all changed reportable information.

I have seen commercial enterprises offering to assist companies in filling the forms and the prices have ranged from $49.00 to $2,000.00.

ANALYSIS OF CTA OBLIGATIONS.

Fines and possible criminal prosecution.  

Failure to comply with the CTA’s reporting requirements can lead to civil and criminal penalties, including a maximum civil penalty of $500.00 per day (up to $10,000.00) and imprisonment for up to two years.  The Rule is long and detailed.  In summary, the Rule requires reporting by a broad swath of “reporting companies,” which includes existing and future domestic and foreign companies, subject to certain exemptions.

Our firm was waiting for final guidance from FinCEN before providing you with compliance instructions.  On Monday, September 27, 2023, however, FinCEN released its 50-page Beneficial Ownership Reporting Guide (“the Guide").

The purpose of this letter is to give you an overview of the CTA as we currently understand it.  First some definitions and general guidance

DEFINITIONS.

Beneficial Owners:  In general, an individual who owns or controls at least 25 percent of a company or has substantial control over the company.  A more detailed description is set forth below.

BOI Report:  The Beneficial Ownership Information report required to be filed.

Company applicants:  An individual who directly files or is primarily responsible for the filing of the document that creates or registers the company.

Corporate Transparency Act:  The underlying federal statute.

Domestic Companies:  A domestic Reporting Company is any corporation, limited liability company, or any other entity created by filing a document with the State Corporation Commission, MDAT, DC Department of Consumer Affairs or a secretary of state or similar state or tribal office.  We understand that this will include a variety of non-corporate entities such as limited liability partnerships, limited liability limited partnerships, business trusts, or limited partnerships.

Foreign Companies: A foreign Reporting Company is any corporation, limited liability company, or any other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or similar office.  This letter does not address the intricacies of Foreign Companies.

A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an Individual or Reporting Company upon request after the Individual or Reporting Company provides certain information to FinCEN. An Individual or Reporting Company may only receive one FinCEN identifier.[2]

Individuals:  This term is used in the Guide but not clearly defined.  We currently understand that this is limited to individual persons but likely incudes persons who hold a fiduciary position such as a Trustee or Executor, beneficiaries and entities or trusts which happen to be Beneficial Owners as well as Grantors/Settlors of Trusts.  There are, however, additional intricacies if tiered ownership is involved.

Ownership Interest:  This definition is important in that reporting companies are required to identify all individuals who own or control at least 25 percent of the ownership interests of the company.  Any of the following may be an ownership interest:  equity, stock, or voting rights; a capital or profit interest; convertible instruments; options or other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership.[3]

Reporting Company:  Any Company required to report under the Rule that is not eligible for an Exemption.  A company may be a “Domestic Reporting Company” or a “Foreign Reporting Company”.

Substantial Control:  An individual can exercise substantial control over a Reporting Company if they serve as a senior officer in the Reporting Company, have authority over the appointment or removal of senior officers or a majority of the board, have “substantial influence over important decisions” of the Reporting Company, or have any other form of substantial control over a Reporting Company.[4]  The broad definition may include third parties.  There are a few limited exceptions to who qualifies as a Beneficial Owner.  Under the Rule, minor children (provided a parent or legal guardian is reported as a Beneficial Owner), nominees, employees (excluding senior officers), future inheritors, and creditors do not qualify as Beneficial Owners.

EXEMPTIONS. 

Small businesses are not per se exempt.  The CTA exempts 23 categories of entities from the definition of “Reporting    Company” and empowers FinCEN to create new exemptions that, generally, are entities that are highly regulated under other federal laws.  Despite having that authority, FinCEN declined to adopt any additional exemptions at this time.  Exempted entities included the following, which each have detailed definitions:

a.   Large operating companies – companies with 20 or more full-time U.S. employees, more than $5 million in U.S.-sourced revenue, and a physical operating presence in the U.S.;
b.   Issuers registered with the Securities and Exchange Commission;
c.   Banks, bank holding companies, savings and loan holding companies, credit unions, financial market utility entities, and money services businesses registered with FinCEN;
d.   Registered Commodity Exchange Act entities, registered investment companies or investment advisers, broker-dealers, and registered venture capital fund advisers;
e.   Insurance companies or state-licensed insurance producers;
f.    Accounting firms (unless involved in the formation of a Reporting Company);
g.   Public utilities;
h.   Certain pooled investment vehicles;
i.    Tax-exempt entities or certain entities that assist tax-exempt entities; and
j.    Inactive companies.

The Rule also provides a reporting exemption for subsidiaries that are controlled or wholly owned, directly or indirectly, by one or more exempt entities.  This exemption does not extend to subsidiaries of money services business, pooled investment vehicles, or entities assisting a tax-exempt entity.  According to FinCEN, it limited this exemption to wholly owned subsidiaries to prevent “entities that are only partially owned by exempt entities from shielding all of their Beneficial Owners.”[5]

WHO ARE BENEFICIAL OWNERS AND WHO IS REPORTED.

Under the Rule, Beneficial Owners are defined as “any Individual who, directly or indirectly, either (1) exercises substantial control over such reporting company or (ii) owns or controls at least 25 percent of the Ownership Interests of such report company.”  There are five exceptions which may apply to a person who otherwise may be a beneficial owner which are discussed in Pages 29-31 of the BOI Guide: (1) Minor Child; (2) nominee, intermediary, custodian, or agent, (3) employee; (4) inheritor of a future interest; and (5) a Creditor.  Because these exceptions are nuanced and should be fully explored as we suggest erring on the side of presuming that an Individual is otherwise a Beneficial Owner absent clearly meeting the exception as described in the Guide. 

Page 19 of the Guide provides a 3-step process:

Step 1:  Identify Individuals who exercise substantial control over the company.

Step 2: Identify the types of Ownership Interests in your company and the Individuals that hold those Ownership Interests.  Examples are provided in the Guide to help identify those Individuals who fit this definition.

Step 3:  Calculate the percentage of Ownership Interests held directly or indirectly by Individuals to identify Individuals who won or control, directly or indirectly, at least 25 percent of the Ownership Interests of the company.

A helpful questionnaire is contained on Guide, page 22 to more specifically confirm ownership.  On the pages following it is clear that it is the Reporting Company’s problem to “see through” entity owners (e.g., if your LLC has a member which is a corporation, it is the Reporting Company’s job to determine the Beneficial Owners of the corporation).

WHEN TO REPORT.

There are three critical dates:  January 1. 2024 (now passed), a time during 2024 and January 1, 2025, and beyond.
 
The Regulations took effect on January 1, 2024.  However, any Reporting Company existing or registered before January 1, 2024, must file its initial report with FinCEN by January 1, 2025. Fortunately, many of McGeehan Pascale, PLC’s clients were formed before January 1, 2024, and they must file on January 1, 2025. For now, their job is to get a FinCEN number and start to collect information in order to file by January 1, 2025.
 
Per the Rule, any Reporting company created or registered after January 1, 2024, must file its initial report within 30 calendar days after creation or registration but FinCEN has extended the deadline to file the BOI Report from 30 to 90 days for companies created in 2024.  If any Reporting Company no longer meets the criteria for a reporting exemption, the company must file its initial report within 30 calendar days of when it lost it exemption status.  After filing an initial report, any Reporting Company that has a change in its Beneficial Ownership information must file an updated report within 30 days of the change.  In addition, if a Reporting Company meets the criteria for an exemption after filing its initial report, it must file an updated report, notifying FinCEN of the change, within 30 days.
 
HOW TO REPORT.

FinCEN is creating the forms by which reporting companies will report Beneficial Ownership information to FinCEN.  FinCEN is expected to publish the proposed reporting forms in the Federal Register in advance of January 1, 2024, for public comment but time is running short for this process to be completed.  When it does come time to report, reporting companies’ initial reports to FinCEN must contain information on the Reporting Company itself, its Beneficial Owners, and for reporting companies created or registered after January 1, 2024, its company applicants.  The Rule describes in detail the report contents and requirements, but the Guide is much more “user friendly in most respects.  Currently there is no fee assessed for filing the report.  Importantly, if an Individual is a Beneficial Owner of a Reporting Company exclusively through their ownership of another company that is exempt from reporting, the Reporting Company does not have to report that Individual’s Beneficial Ownership.  Rather, the Reporting Company must provide only the names of the exempt entities in lieu of providing information on the beneficial Owners who meet these criteria. 

Also notable, reporting companies created or registered after January 1, 2024, must provide information about their company applicants.  The information required is the same information as a Beneficial Owner.  A company applicant is any Individual who files the document that creates a company, as well as any Individual who is primarily responsible for directing or controlling the filing.  Accordingly, a Reporting Company may have more than one applicant.  A Reporting Company does not have to provide updates on the company applicants after including such information in its initial report to FinCEN.
 
What is required to be reported?
 
A Reporting Company will have to report:
1.   It's full legal name;
2.   Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
3.  The current street address of its principal place of business if that address is in the United States (for example, a U.S. Reporting Company’s headquarters);
4.   Its jurisdiction of formation or registration; and
5.   Its Taxpayer Identification Number.
 
A Reporting Company will also have to indicate whether it is filing an initial report, or a correction or an update of a prior report.[6]

What information will a Reporting company have to report about its Beneficial Owners?
 
For each Individual who is a Beneficial Owner, a Reporting Company will have to provide:
 
1.   The Individual’s full legal name;
2.   Date of birth;
3.   Complete current Residential address; and
4.   An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document (for examples of acceptable identification, see below).
The Reporting Company will also have to report an image of the identification document used to obtain the identifying number in item 4.[7]
 
What information will a Reporting Company have to report about its company applicants?
 
For each Individual who is a company applicant, a Reporting company will have to provide:

1.  The individual's full legal name;
2.   Date of birth;
3.   Complete current address; and
4.   An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document (for examples of acceptable identification, see below).

As with Beneficial Owners, the Reporting Company will also have to report an image of the identification document used to obtain the identifying number in item 4.  If the company applicant works in corporate formation–for example, as an attorney or corporate formation agent–then the Reporting Company must report the company applicant’s business address.  Otherwise, the Reporting Company must report the company applicant’s residential address.[8]

What are some acceptable forms of identification that will meet the reporting requirement?
 
The only acceptable forms of identification are:
 
1.   A non-expired U.S. driver’s license (including any driver’s licenses issued by a commonwealth, territory, or possession of the United States);
2.   A non-expired identification document issued by a U.S. state or local government, or Indian Tribe;
3.   A non-expired passport issued by the U.S. Government; or
4.   A non-expired passport issued by a foreign government (only when an Individual does not have one of the other three forms of identification listed above).[9]
 
CONTINUING OBLIGATON TO REPORT ALL CHANGES.
 
What should I do if previously reported information changes?
 
If there is any change to the required information about your company or its Beneficial Owners in a BOI Report that your company filed, your company must file an updated report no later than 30 days after the date of the change.  A Reporting Company is not required to file an updated report for any changes to previously reported information about a company applicant.[10]
 
What are some likely triggers for needing to update a BOI report?
 
The following are some examples of the changes that would require an updated BOI Report.

• Any change to the information reported for the Reporting Company, such as registering a new business name.
• A change in Beneficial Owners, such as a new CEO, or a sale that changes who meets the Ownership Interest threshold of 25 percent.
• Any change to a Beneficial Owner’s name, address, or unique identifying number previously provided to FinCEN.  If a Beneficial Owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the Reporting Company also would have to file an updated BOI Report with FinCEN, including an image of the new identifying document.[11]

 
CORRECTION INACCURATE INFORMATION. 

What should I do if I learn of an inaccuracy in a report?
 
If a BOI Report is inaccurate, your company must correct it no later than 30 days after the date your company became aware of the inaccuracy or had reason to know of it.  This includes any inaccuracy in the required information provided about your company, its Beneficial Owners, or its company applicants.[12]

COMPLIANCE/ENFORCEMENT.
 
If you correct a mistake or omission within 90 days of the deadline for the original report, you may avoid being penalized. However, you could face civil and criminal penalties if you disregard your BOI Reporting obligations.[13]
 
FinCEN IDENTIFIER.
 
How can I use a FinCEN identifier?
 
When an Individual who is a Beneficial Owner or company applicant has obtained a FinCEN identifier, reporting companies may report the FinCEN identifier of that Individual in the place of that Individual’s otherwise required personal information on a BOI Report.
 
On November 7, 2023, FinCEN issued a final rule (effective January 1, 2024) that specifies the circumstances in which a reporting company may report an entity’s FinCEN identifier in lieu of information about individual beneficial owners.  Although there is no requirement to obtain a FinCEN identifier, doing so can simplify the reporting process and allows entities or individuals to provide the required identifying information directly to FinCEN.[14]
 
How do I request a FinCEN identifier?
 
Individuals will be able to request a FinCEN identifier on or after January 1, 2024, by completing an electronic web form (not yet available).  Individuals will need to provide their full legal name, date of birth, address, unique identifying number and issuing jurisdiction from an acceptable identification document, and an image of the identification document.  After an individual submits this information, the Individual will immediately receive a FinCEN identifier unique to that individual.
 
Reporting companies may request a FinCEN identifier by checking a box on the BOI Report when they submit the report.  After the Reporting Company submits the report, the Reporting Company will immediately receive a FinCEN identifier unique to that company.  If a Reporting Company wishes to request a FinCEN identifier after submitting its initial Beneficial Ownership report, it may submit an updated BOI Report requesting a FinCEN identifier, even if the company does not otherwise need to update its information.[15]
 
Are FinCEN identifiers required?[16]
 
No.  An Individual or Reporting Company is not required to obtain a FinCEN identifier.
 
Do I need to update or correct the information I submitted to obtain a FinCEN identifier?
 
Yes.  Individuals must update or correct information through the FinCEN identifier application that is also used to request a FinCEN identifier.

• Individuals must report any change to the information they submitted to obtain a FinCEN identifier no later than 30 days after the date on which the change occurred.

 

• If there is any inaccuracy in this information, an individual must correct the information no later than 30 days after the date the individual became aware of the inaccuracy or had reason to know of it.

 
Reporting companies with a FinCEN identifier must update or correct the company’s information by filing an updated or corrected BOI Report, as appropriate.[17]
 
Is there any way to deactivate an individual’s FinCEN identifier that is no longer in use so that the Individual no longer has to update the information associated with it?
 
FinCEN reports that it is actively assessing options to allow Individuals to deactivate a FinCEN identifier so that they do not need to update the underlying personal information on an ongoing basis.  FinCEN advises that they provide additional guidance on this functionality upon completion of that process.[18]
 
THIRD-PARTY SERVICE PROVIDERS.
 
Can a third-party service provider assist reporting companies by submitting required information to FinCEN on their behalf?
 
Yes.  Reporting companies may use third-party service providers to submit BOI Reports.  Third-party service providers will have the ability to submit the reports via FinCEN’s E-Filing system and/or an Application Programming Interface (API).  Technical specifications for the API will be made available at a later date.[19]
 
AMENDMENT TO YOUR OGANIZATONAL DOCUMENTS.

Since the failure to correctly report can cause civil and penalties and fines for the Reporting Company and senior officers/managers/partners and other persons who have substantial control, a Reporting company should amend your Shareholder Agreements, Operating Agreements, Partnership Agreements, Trust Documents, or similar documents to:
 
1. Have each Beneficial Owner agree to fully and promptly comply with the BOI Report requirements;
2.  Indemnify the Company and its officers/managers/partners for failure by any individual to timely supply all required information in an accurate and complete format upon request; and
3.  Appoint a person to be the BOI Compliance individual to regularly request changed information from all individuals and to file amended reports.
 
If you are a single member LLC or your LLC consists of family members that you believe will provide your prompt and correct information you may determine that such an amendment is not required or desirable, but you should consider amending the documents in the future if you bring on additional members.  If you want our assistance in preparing suggested amendments to the applicable governing documents, please contact us.  Because we may not send any further information or updates to this letter, please either check directly with us, make a request on the Priority Business Client Program℠ form, or consult the FinCEN website for further information and the Beneficial Ownership Reporting Guide at:  https://www.fincen.gov/boi.


[1] Section 31 CFR 1010.380 (Code of Federal Regulations).

[2] Frequently Asked Question, M.1, FinCen website, Guide, page 40

[3] See page 18 of the Guide.

[4] See specific examples in Page 17 of the Guide.

[5] See pages 4-14 of the Guide for a list of Reporting Company Exemptions and Yes/No questions which help with determining whether a company is exempt.

[6] Frequently Asked Question F.2, FinCen website, Guide, page 38.

[7] Frequently Asked Question F.3, FinCen website, Guide, page 38.

[8] Frequently Asked Question F.4, FinCen website, Guide, page 38.

[9] Frequently Asked Question, F.5, FinCen website, Guide, page 38.

[10] Frequently Asked Question, H.1, FinCen website, Guide, page 45.

[11] Frequently Asked Question H.2, FinCen website, Guide, page 45

[12] Frequently Asked Question I, FinCen website, Guide, page 47

[13] Frequently Asked Question, J, FinCen website, Guide, page 15

[14] FinCEN Small Entity Compliance Guide, Section 4.3.

[15] Frequently Asked Question M.3, FinCen website.

[16] Frequently Asked Question M.4, FinCen website.

[17] Frequently Asked Question, M.5, FinCen website.

[18] Frequently Asked Question, M.6, FinCen website.

[19] Frequently Asked Question, N.1, FinCen website.

The U.S. Department of Labor’s (DOL’s) test for determining whether a worker should be classified as an independent contractor or an employee for purposes of the federal Fair Labor Standards Act (FLSA) has been revised several times over the past decade. Now, the DOL is implementing a new final rule rescinding the employer-friendly test that was developed under the Trump administration. The new, more employee-friendly rule takes effect March 11, 2024.

Role of the new final rule
Even though the DOL’s final rule isn’t necessarily controlling for courts weighing employment status issues, it’s likely to be considered persuasive authority. Moreover, it’ll guide DOL misclassification audits and enforcement actions.
If you’re found to have misclassified employees as independent contractors, you may owe back pay if employees weren’t paid minimum wage or overtime pay, as well as penalties. You also could end up liable for withheld employee benefits and find yourself subject to various federal and state employment laws that apply based on the number of affected employees.

The rescinded test
The Trump administration’s test (known as the 2021 Independent Contractor Rule) focuses primarily on whether, as an “economic reality,” workers are dependent on employers for work or are in business for themselves. It examines five factors. And while no single factor is controlling, the 2021 rule identifies two so-called “core factors” that are deemed most relevant:

• The nature and degree of the employer’s control over the work, and
• The worker’s opportunity for profit and loss.

If both factors suggest the same classification, it’s substantially likely that classification is proper.

The new test
The final new rule closely shadows the proposed rule published in October 2022. According to the DOL, it continues the notion that a worker isn’t an independent contractor if, as a matter of economic reality, the individual is economically dependent on the employer for work. The DOL says the rule aligns with both judicial precedent and its own interpretive guidance prior to 2021.
Specifically, the final rule enumerates six factors that will guide DOL analysis of whether a worker is an employee under the FLSA:

1. The worker’s opportunity for profit or loss depending on managerial skill (the lack of such opportunity suggests employee status),
2. Investments by the worker and the potential employer (if the worker makes similar types of investments as the employer, even on a smaller scale, it suggests independent contractor status),
3. Degree of permanence of the work relationship (an indefinite, continuous or exclusive relationship suggests employee status),
4. The employer’s nature and degree of control, whether exercised or just reserved (control over the performance of the work and the relationship’s economic aspects suggests employee status),
5. Extent to which the work performed is an integral part of the employer’s business (if the work is critical, necessary or central to the principal business, the worker is likely an employee), and
6. The worker’s skill and initiative (if the worker brings specialized skills and uses them in connection with business-like initiative, the worker is likely an independent contractor).

In contrast to the 2021 rule, all factors will be weighed — no single factor or set of factors will automatically determine a worker’s status.
The final new rule does make some modifications and clarifications to the proposed rule. For example, it explains that actions that an employer takes solely to comply with specific and applicable federal, state, tribal or local laws or regulations don’t indicate “control” suggestive of employee status. But those that go beyond compliance and instead serve the employer’s own compliance methods, safety, quality control, or contractual or customer service standards may do so.
The final rule also recognizes that a lack of permanence in a work relationship can sometimes be due to operational characteristics unique or intrinsic to particular businesses or industries and the workers they employ. The relevant question is whether the lack of permanence is due to workers exercising their own independent business initiative, which indicates independent contractor status. On the other hand, the seasonal or temporary nature of work alone doesn’t necessarily indicate independent contractor classification.
The return, and clarification, of the factor related to whether the work is integral to the business also is notable. The 2021 rule includes a noncore factor that asks only whether the work was part of an integrated unit of production. The final new rule focuses on whether the business function the worker performs is an integral part of the business.

For tax purposes
In a series of Q&As, the DOL addressed the question: “Can an individual be an employee for FLSA purposes even if he or she is an independent contractor for tax purposes?” The answer is yes.
The DOL explained that the IRS applies its version of the common law control test to analyze if a worker is an employee or independent contractor for tax purposes. While the DOL considers many of the same factors as the IRS, it added that “the economic reality test for FLSA purposes is based on a specific definition of ‘employ’ in the FLSA, which provides that employers ‘employ’ workers if they ‘suffer or permit’ them to work.”
In court cases, this language has been interpreted to be broader than the common law control test. Therefore, some workers who may be classified as contractors for tax purposes may be employees for FLSA purposes because, as a matter of economic reality, they’re economically dependent on the employers for work.
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Next steps
Not surprisingly, the DOL’s final new rule is already facing court challenges. Nonetheless, you should review your work relationships if you use freelancers and other independent contractors and make any appropriate changes. Remember, too, that states can have different tests, some of which are more stringent than the DOL’s final rule. Contact your employment attorney if you have questions about the DOL’s new rule. We can assist with any issues you may have regarding independent contractor status for tax purposes.

​In past years, corporations and LLCs received a document that is misleading.  It may have come from one of various companies.  It appeared to be from the Virginia State Corporation Commission, but it is an advertising piece from a private company.  It appears to be the annual report required by the State Corporation Commission, so some clients send in money.  It was NOT an annual report and late the client paid a late fee to the State. 
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In January, as the registered agent for some companies, I received from “Virginia Business Certificates” a solicitation to buy a 2021 Certificate of Fact of Existence Request Form for $67.00.  This is not an official state form and has no official use.  I searched and found no company by that name registered to do business in Virginia.  It answers the telephone and has an address in Richmond.  An official certified Certificate of Corporate Existence can be purchased from the Virginia State Corporation Commission’s web site, www.scc.virginia.gov/Clerks office for $6.00.   If you have questions concern this, please feel free to call McGeehan Pascale, 703-273=5303.

Starting January 1, 2021, Virginia adopted new laws and rules for “balance billing”. 

Duties of Healthcare Provider:

If the health plan’s enrollee is treated by an out-of-network provider for emergency services or an in-network facility for scheduled services covered by Virginia law and rules, the provider or facility that is out of net work will submit the claim to the enrollee’s health plan.  The amount the health insurer pays the facility or provider must be “commercially reasonable amount based on the same or similar services in a similar geographic area.  If the health care provider and plan cannot agree on the amount, either party can start the arbitration process.
The Virginia of Department of Health provides a data set of what is a commercially reasonable payment data and Protocols. 
If health care providers have a pattern of violations under the new law without attempting corrective action, they are subject to fines or other remedies by the Virginia Board of Medicine or the Virginia Commissioner of Health. Similarly, insurance companies that are found to engage in a pattern of violations of the new law are subject to fines or other remedies by the SCC. Neither insurance companies nor health care providers may use arbitration as a general business practice for resolving claims payments.

Right of patient:

A patient has a right to be informed if the provided is in-network or out-of-network before being treated.  And the conditions when they can and cannot be balanced bill.
Not all health care providers are subject to this law.  However, when a patient schedules a medical service, they should ask their health care provider if they are in-network. Insurers are required to tell them that (on their websites or on request). Hospitals and other health care providers also must tell you (on their websites or on request) which insurance plans they contract with as in-network providers.
When a patient receives an explanation of billing (EOB) it must state what they must pay.  If they have a high deductible, they must pay the balance up to their deductible. If there is a dispute, the patient may file a complaint with the Virginia State Corporation Commission, Bureau of Insurance.

Classification and Exemptions of Administrative Workers under FLSA

            Misclassification of a worker can carry serious consequences to an employer.  In an opinion letter, dated January 8, 2021, the Secretary of Labor considered whether account managers are exempt from the minimum wage and overtime rules under the Fair Labor Standards Act (FLSA) and Portal to Portal Act.  As with all FLSA questions, the answer mostly depends of the facts.  In this case the facts were the account managers were given flexibility and autonomy to develop account plans and explaining how the product will benefit a prospective client and follow through helping client develop a plan.  The account managers are paid above the weekly salary threshold.  They perform non-manual work and primarily office work.  They exercise discretion and independent judgement with respect to matters of significance.  The Director of WHD held they were exempt as administrative employees. 

The U.S. Department of Labor has announced a proposed rule clarifying the definition of employee under the Fair Labor Standards Act (FLSA) as it relates to independent contractors.
“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” said Secretary of Labor Eugene Scalia.  “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

The Department’s proposed rule would:

• Adopts an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee);
• Identifies and explains two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself;
• Identifies three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and;
• Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

This Notice of Proposed Rulemaking (NPRM) is available for review and public comment for 30 days after it is published in the Federal Register. The Department encourages interested parties to submit comments on the proposed rule. Today’s web posting offers the public more time to review the NPRM before the comment period begins.