Podcast 110: Navigating Entity Registrations and Charitable Giving Strategies

In this episode, host and financial advisor Gregory Ricks and CPA Jude Heath dive deep into the complex world of entity registrations and charitable giving options. They discuss the new FinCEN beneficial ownership reporting requirements, including deadlines and penalties for non-compliance. The conversation also covers the intricacies of setting up charitable trusts and family foundations, highlighting the administrative challenges and tax implications. Listeners will gain valuable insights on how to properly structure their entities and maximize their philanthropic efforts while staying compliant with the latest regulations. Whether you’re a business owner, tax professional, or someone looking to make a meaningful charitable impact, this episode is a must-listen to get the most out of the ever-evolving financial landscape.

Get your complimentary guide to go with this episode:

By submitting your contact information, you consent to be contacted regarding retirement income strategies that utilize investments and insurance products.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 02789979 – 12/24

SUMMARY KEYWORDS

Entity Notifications, Beneficial Ownership, Fincen Registration, Criminal Penalties, Deadline Extension, Tax Implications, Charitable Trust, Family Foundation, Donor-Advised Funds, Registered Agent, Financial Crimes Unit, IRS Notification, Charitable Remainder Trust, Estate Planning, Financial Advisor

SPEAKERS

Gregory Ricks, Jude Heath

Gregory Ricks 00:00
Gregory, hey, welcome. I’m your host. Gregory Ricks, a financial advisor here to answer your questions and help you win with your money. What I want to get into is these entity notifications. And you brought up a couple of where the IRS is looking to know some more stuff about entities. And then I think the treasuries looking for that. So can you kind of walk us through both and like, here’s the for each one, the two or three things you got to do, even if it’s one, help us with that.

Jude Heath 00:34
So the way to think about it in its most simplest terms is that when the Patriot Act was installed, after 911 they made inroads into that the planes that were flown into the buildings were financed through entities, and so over the years, they have just noticed that a lot of criminal activities happen within entities, cartels. Most of Epstein Island went through entities on down the line. So they’ve been this push by the FBI, the FinCEN unit, financial crimes. We’ve got to get a census of all the entities states don’t want any part of it. We’ve talked to the Louisiana Secretary of State several times, and they have said, we are pushing back on FBI. That is not our responsibility, that’s your responsibility. And so back couple of years ago, and then it got appealed and it got kicked back in court a couple of times they push this FinCEN Financial Crimes Unit of beneficial ownership interest BOI required registration, a required census. Of all, just call it federal ID numbers. There’s a couple of exceptions, exceptions, but for the most part, everybody that’s listening that has a federal ID number, a trust, a charity, an LLC, a partnership, an S corp, a C Corp. But C Corps are not required. So anyway, the point is, is that you have to go online and register that you’re the beneficial owner, or you register all your beneficial owners. I think the beneficial ownership percentage is 25% and anybody below 25% doesn’t have to register.

Gregory Ricks 02:36
So it’s 25% or more has to register. Yes,

Jude Heath 02:38
that’s my memory. But the point is,

Gregory Ricks 02:41
and you go online, what’s that website?

Jude Heath 02:43
Oh, let me look it up.

Gregory Ricks 02:44
Okay, he’s gonna look it up far, see,

Jude Heath 02:47
so, yeah, so the point is, is that you gotta go online, put your name and address in social many, many times. You’re the director, you’re the checkbook holder, you’re this, you’re that, and then you got to upload your driver’s license. And so, you know, the call came out. Oh, we can’t believe how intrusive. But the bottom line is, the criminal organizations are not going to do this, and so the ones that follow the law, that follow the letter of the law, they’re going to do it. And if you don’t do it, the criminal penalties are in the 1000s, because they start by day. And so the rules are for this first year, if you started an entity, they’ve given you 90 days from creation of the entity. If you created it in 2024 to register with FinCEN . If you had the entity prior to 2024 you have until 12/31/23 excuse me, 12/31/24 if you had it prior to, what if you had prior to one, one of 24 so they’re giving you two.

Gregory Ricks 03:53
I’m going ahead. What’s the deadline? If you had the business, the entity prior to January of 2024

Jude Heath 04:01
12/31/24 the end of the year. Yeah, so it’s not complicated. I’ve talked to many clients. I said, Oh yeah, I did that. You just go right online and you type your name, address and social and I think they want your home address. They want the business address. The other side of it is, and they’ll tell you this on FinCEN, that they’re gonna want you when you move or when you get your driver’s license updated. They’re gonna want it changed, but that’s after you’re required to maintain your record with the FBI. Okay, so that’s after this year, they just got to get the per the push to get this year, to get LLCs registered

Gregory Ricks 04:47
so entities, if you had it prior to beginning of this year, you have to have done that by December 31 of this year. Yes, no grace period there. And I. Assume, if you started the entity this year, they’ve given you till next year.

Jude Heath 05:05
You started the entity this year, you get 90 days from the date of creation.

Gregory Ricks 05:10
Oh, they’re not playing, are they?

Jude Heath 05:13
No, and it’s not a money grab, as much as my take on it, because people always want to know, oh, why the intrusiveness? Why they they’re burying they’re burying themselves. In my business, when you, when you look at the FinCEN unit, I think what is there? They said something like this, 30 million entities in the country, they don’t have enough police. It’s got to be self policed, so they had to make the penalties, extra punitive and from all the continuing education I’ve been through throughout the year, of the lawyers that have spoken on this, the lawyers don’t know how they’re going to defend themselves. I mean, one lawyer particularly brought up, you know, my mother’s in a nursing home. I’m not she owns a land company that has Gator farming. I’m not going to go get my mother, my mother out of nursing home so that we can, you know, bring her down to get a license. She stopped driving years ago. It’s just a lot of complications, but things are going to have to be done. Send

Gregory Ricks 06:18
them to talk to the Gators. Huh? That’s you got some questions. Go talk to the Gators. Okay, so, but I guess then their focus would be about unregistered is kind of where they would focus, going after because if you registered, you’ve got everything. It’s kind of all the ones that didn’t register, like, what the heck’s going on?

Jude Heath 06:38
Well, what’s going to be interesting is that, what do the states do at that point? When, when the FinCEN so? So the website is, let’s see the website is fincen.gov So, what do the states do when the FBI produces a list and says, these are all the entities, batch it up against yours and give us a list of the people that didn’t register. That, to me, is where it starts of, you know, it’s little things. I had this guy call me. He makes little architectural houses in it’s not the Ukraine, but it’s one of those countries on the block, and he’s got a Wyoming LLC. And he said, You know, I don’t pay taxes. I just had to have I pay whatever I think it was Romania. I pay Romanian taxes. I’m like, No, you’re selling those are those little, tiny architectural models in the States, and you had to have a US company in order for people to do business with you. That’s US tax. Well, he stopped accepting my video call request anymore. And so you know that that’s a little thing of, I think that he’s going to start having and he probably isn’t going to register. He’s going to have to start paying taxes.

Gregory Ricks 08:03
Now, there’s another one on the IRS side. We’ve We’ve only got a few seconds here left, but there’s another registration you were telling us about that has to be done, that you are required to do, from registration standpoint regarding entities or ownership,

Jude Heath 08:23
it’s basically the same thing they want to know the accountants and the lawyers that are installing entities.

Gregory Ricks 08:31
So if somebody has an entity or a part of an entity that they have 25% or more ownership, they’ve got to register it@fincen.gov

Jude Heath 08:46
so what will more than likely happen is the lead partner, that is, let’s say they 25% he’ll get all of the partners together, and because you’re registered by entity, so You should be, you

Gregory Ricks 09:00
should be aware, yes, that you’re the head guy, the main owner, or whatever’s got this going so that

Jude Heath 09:08
the tax matters, partner. So

Gregory Ricks 09:12
a good question to ask is ask the organization you’re a part of. Hey, hey, did y’all register within set

Jude Heath 09:21
right, because we we don’t want to pay the penalties for not having registered by December 31 so the good news is, is that once this is done at December 31 then you only need to register changes from there on out. And so it’s a one time, once, this once. Now, if you start a new entity, you got to register, but it’s a one time census thereafter, once they’ve built the database, then you just need to make changes as your license changes, or your move or or whatnot. So that’s actually good news. It’s not an annual file. Calling

Gregory Ricks 10:01
Interesting. Okay, so, and this other deal I was asking you about came about where CPAs tax preparers and such that if, if somebody comes in, they have an entity and you’re preparing, you were being required. You are required to give a notification to the IRS.

Jude Heath 10:26
I believe it is so right now. For years, we’ve had to pay for a P 10, which is a prepare tax identification number. That is a number that at a button they can press and say, How many, how many returns? Who is this? Prepare preparing, whether it’s whatever administration is in office, we have always had that it’s just a regulation. What you’re talking about is, is that there are preparers, CPAs, attorneys that help clients create entities, like they’re a registered agent or they help them create the entity. And so that FinCEN wanted to know whether you helped people create entities. And so that that’s the extra regulation. They want to know who the facilitators are of creating all these entities. And so that’s something else to ask. You know, whoever your registered agent is on your entity, because sometimes they’re different. You know, there’s, there’s big houses like, say, Legal Zoom, or something like that, where they’ll keep the registered agent profile on the entity with the individual state secretaries of state, and they’re going to be required to to put their name onto that record In FinCEN that they’re a facilitator of entity creation.

Gregory Ricks 12:02
So you should be able to go to the State’s website then and see who the registrar is.

Jude Heath 12:07
Yes, all the all the states have secretary of state websites that you can search on entities, and you can see you can check your entity and make sure that your registered agent is who you want it to be. It’s, it’s some people don’t want the person say, I went to this attorney. He’s since transitioned over. I don’t like the new guy, and so I want to change registered agents. So that’s a really good thing, especially in some I’m thinking of like Alabama. The State of Alabama has a really serious registration of these registration agents, and you’ve got to have somebody in the state, if you’re a foreign entity that registers, you gotta do that in Mississippi, too. And so sometimes you don’t want your guy anymore. Either you don’t get along, or he moved on, he passed his stuff on. And so you want to make a change, and so it’s a good idea just to make sure that the change that you wanted was made. So you can go online and check your entity and see the record.

Gregory Ricks 13:13
So if you do your taxes yourself, is there something you got to do there, or this rule that we’re speaking of with you is just because it’s professionals have to provide that notification. If you do it yourself, you don’t need to tell the IRS that

Jude Heath 13:32
that’s correct. You, the IRS knows that you self prepared, but

Gregory Ricks 13:36
FinCEN, FinCEN is going to know, because everybody, regardless, has to tell them, Okay, let’s, let’s talk about, I’ve got a question here. Had somebody asked me they were wanting to set up a 501, C Charitable Trust type, kind of like, but what they brought to me is kind of like, I’d like to drop the money that I’m wanting to give the way to charity and in a 501, C or charitable trust, and then give the money out from them. So it makes it clean, if they’re, if they’re, you know, say, lopping 100,000 into their entity. So they’ve got 100,000 that they donated to that, then they can parcel it out from there. And I think they have to give out what 10% a year or something from that. Can you help us on what’s involved in structuring that?

Jude Heath 14:31
So you’re talking about a family foundation, for the most part. They have, recently, within the last six years or so, developed these donor advised funds that do the same thing without all the rules and regulations. The biggest issue with the family foundation is you have to find a board of directors that does, meets, hears proposals, a. How to Give the money away, and you can’t be involved. It’s not your charity. I do get in this discussion with lots of folks that I understand you want to keep you want to make a donation of 200,000 and you want to keep control of that 200,000

Gregory Ricks 15:21
so I’ve got Jude Heath here with us, and we’re, we’re, we’ve got one more topic to hash out with him. So he, he volunteered himself for a whole nother extras I had asked for the first one, and then we got into a charitable trust because I had this question that came up to me recently, but somebody saying, what, you know, I I like to do money through like to donate money and give to charities and such. How about I just drop it all into a charity that I create, or charity trust. I’m not sure of the terminology. Jude knows that better, but he, he just shared with us. Well, that’s a little bit more complicated. You can do that. You you could get the you could create that, you could say, drop 100k into it so you get the deduction for that. But you’re by doing it that way, then you’re not the one. And from the IRS standpoint, is they’ll be unhappy if you’re the one dictating of where it goes.

Jude Heath 16:34
Well, more than unhappy Gregory, they’ll, they’ll take away the ability for it to be a charity, and so then your deductions are no longer deductible.

Gregory Ricks 16:47
They’ll claw it back then too. Oh, you don’t look happy about that. I see your face like, yeah, you know, having it, but that’s that’s more work for you if it becomes broken from that standpoint. And

Jude Heath 17:00
I have to ask folks that come in that that add that, ask these questions that I’m just thinking about this insurance agent, that a client, that is, is a client, and he wanted, he wanted develop, to develop on his family foundations. And he eventually got upset with the phone call, because, number one, they’re expensive. You have to go. You develop an ink, regular ink. You have to elect the 501, c sub chapter that you want on it. If it’s a three, it’s a charity, Family Foundation, has its only own sub chapter. And you got to follow the rules. You got to follow the rules with the money and the assets that go inside of that charity, and that means somebody else decides, other than you, someone you have no control over. And you know, this conversation did Ned well, he got furious, because it’s my idea. It’s my charity. I’m going to do whatever I want. No, that’s not what the IRS says. Has to happen. First of all, you have to have, if it’s a basic charity, you have to have a societal purpose. If it’s a family foundation, they’re okay with you giving your money away in 10% increments every year so the money can grow tax free, and you can give it away. Your board gives it away. You receive grant applications into your board, and your board votes on these grants and decides which, which charity of many gets, gets these monies every year. It’s a wonderful concept, but you’ve got to find your board members, and you know, a lot of times they’re not paid positions. So you’re asking the people to meet at night on the weekends with online meeting. That’s not as big of a deal now, but people have their own interjections, their own personality. Interjections. We were involved in one some years ago that built playgrounds for children, and was a, it was a young lady had died in her early 30s, and we amassed a bunch of donations on her behalf, and had a charity. And we were able to build a few, a few playgrounds before, you know, eventually the charity ran out of money, and and we, and we dissolved it, and that was the end. It had served its purpose.

Gregory Ricks 19:23
Okay, we’ll change it to this charitable remainder trust. I’ve got Jude over there laughing now, another twist on that, and how would that work, a charitable remainder trust. The definition of that for listeners are a donor transfers property, cash or other assets into an irrevocable trust. The trust basis in the transferred assets is carry over basis. See, we’re already getting very complicated here, which is the same basis that it would be in the hands of the. Donor for assets transferred to the trust during the lifetime of the donor.

Jude Heath 20:07
So the charitable remainder trust, somebody, you’re saying, somebody would come in and they would say, you know, I’ve got this extra million, and I’m going to, I want to create a trust. It’s going to be a charitable remains of trust. But put the million in there, and then that it’s going to pay minimum 5% out every year in to not to beneficiaries, but that that money is a deduction as a charitable deduction. But then that money upon they’re structured a couple different ways. But that money, upon the death of that person, usually reverts back to to a charity. And so the money’s kind of gone from the from the moment that the charitable remainder trust is created. There’s a couple of different kinds as Unit Trust, the crat, a CRUT. It really just gets into, you know, what? When you’re meeting it’s more estate planning what? When you’re meeting with your estate folks, about planning your estate, you know, what direction do you want to go in, and what do you call feel called to do? And a lot of times it’s the folks are, you know, they’re planning their estate, and they’re feeling a particular charitable calling, some particular need that they want at to fulfill, and that’s where they develop these ideas, with their state attorney. And, yeah, there are some tax effects to it, but for the most part, it’s for folks that can afford the extra administration cost, either up front or ongoing. In the case of family foundations that are required to develop and maintain these entities and the tax returns, I can tell you, just on a CRUT. We’ve got several cruts in house, and they’re complicated. And so I it’s not an an easy individual return. It’s a complicated thing. You have to maintain balance sheets, financials. Who’s going to do that? Somebody has to be contracted to do that, and so our thoughts are, is that I don’t know who’s bringing this to you, but these are more or less complicated individual situations that are looking to make these decisions.

Gregory Ricks 22:37
Well, you know, we’ve got this one time RMD, pretty sizable amount that you can do it net, what’s neighborhood of 50,000 that you could take and put that in a charitable remainder trust could be an example of what to do with with that money.

Jude Heath 22:57
And I don’t know if $50,000 is is enough for the all the administration that it takes. I think you got to get scale there. I could run some numbers and see, you know, see, I’m glad I brought this up.

Gregory Ricks 23:10
You’re looking for opportunities and all, but it’s that you’re, you’re kind of saying, yeah, that just should be part of what you’re planning to do to that, let’s say I’m just going to drop 50k and this solves that for you.

Jude Heath 23:26
Yeah, you’re going to, what are you going to make on 50k in a given year? You got to pay 5% out, and then you got to pay the rest of it for administration, tax returns, lawyer fees, whatnot. And so it seems like it’s a it has to be a little bit of a bigger entity.

Gregory Ricks 23:45
See, I have this opportunity here, and this is why I think it’s important to work with somebody like Jude on on the tax side of what you’re doing with assets and and it’s just to bounce ideas off of because you get it wrong, it’s kind of expensive, and the IRS going to undo what you did, or come after you hunting for more money, and that’s usually two years after you mess it up, and then that’s the penalties and interest that makes that ugly. And as far as working with a financial advisor, I think it’s important, like, why should you use a financial advisor? Why should you use a CPA like Jude? It’s because you don’t know what you don’t know, and you need to have a coach or a guide to help you with ideas and the parameters of what you’re wanting to do, and help you with what you you don’t know, because that’s what’s going to hurt you right there. So think about that. So Jude, how do they reach you?

Jude Heath 24:50
So the easiest way our website is Jay Heath, cpa.com, or 504-832-1873, or, if you had, don’t have any of that, just. Call Gregory’s office and they send send clients to me all week.

Gregory Ricks 25:03
Thanks so much for listening to ask Gregory where we answer your financial questions. You can find us anywhere. A podcast can be found and on YouTube and Facebook Live every Saturday from 10 to one. If you love this podcast, tune in next time I work in the world of helping people with their money, helping them with their investments. We use institutional guidance and we invest 5050, philosophy, but it’s not just about managing the money. I think part of what’s important that we are are a sounding board where people feel comfortable reaching out, saying, Hey, I’ve got this. I was thinking about doing this. What do you think? Gregory, that’s what we are for our clients, and our clients see us that way. For their friends, family, colleagues, they know, place where you can plan. I need some help on this. I’ve got questions about this. I need to talk about this. 504832 9200 there’s only one number to call, no matter where you want to be. 504832 9200 or go to Gregory ricks.com Investment

Disclosure 26:16
Advisory products and services are made available through AE Wealth Management LLC, a registered investment advisor. Insurance products are offered through the insurance business Gregory Ricks and Associates, Inc, a wealth management does not offer insurance products. The insurance products offered by Gregory Ricks and Associates, Inc, are not subject to investment advisor requirements. Investing involves risk, including the potential loss of principal, any references to protection, safety or lifetime income generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strengths and claims of the paying ability of the issuing Carrier. This podcast is intended for informational purposes only. It is not intended to be used as a sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual situation. Gregory Ricks and Associates is not permitted to offer and no statement made during the show shall constitute tax or legal advice. Our firm is not affiliated with nor endorsed by the US government or any other governmental agency. The Information and opinions contained herein provided by third parties have been attained by sources believed to be reliable, but the accuracy and completeness cannot be guaranteed by Gregory Ricks and Associates. Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increase in taxable income from the Roth IRA conversion may have several consequences, including, but not limited to a need for additional tax withholdings or estimated tax payments, the loss of certain tax deductions and credits and higher taxes on Social Security benefits and higher Medicare premiums, be sure to consult with a qualified tax advisor before making any decisions with your IRA. Neither AE wealth management or advisors providing investment advisory services through AE Wealth Management recommend or facilitate the buying or selling of cryptocurrencies third parties and guests of the show are not affiliated with nor do their opinions reflect those of Gregory Ricks and associates or AE wealth management. AE Wealth Management provides services without regard to political affiliation and the views of individual advisors do not necessarily reflect the views of AE wealth management. We are ask Gregory, you.