Private Client Considerations: Investment Structure Compliance and Reporting

Article 28 September 2022 Experience: Private client
Tax

Providing Internal Controls for the Integration of State and Federal, Legal and Ancillary Tax Compliance and Reporting Obligations


Fiduciary Compliance and Reporting Obligations

Family members and family fiduciaries (including private trust companies and family offices) that are in a position of owning and/or managing private wealth have long-held assets in and through investment partnerships, such as joint ventures, pooled-capital vehicles, and family investment partnerships. 21st Century data management initiatives at the US state and federal government levels have led to new and diverse reporting requirements relating to entity formation, management, and activities, as outlined below. Withers can provide detailed analysis and a supplement to fiduciary internal controls for an increasing set of demands for government compliance and reporting, as a complement to family and fiduciary annual income tax accounting and compliance being handled by certified public accountants and other qualified service providers.

The Importance of Compliance Management

Many family members and family fiduciaries already possess – directly or with professional help – the due diligence and tools needed to assess and complete expanded compliance and reporting demands, but the process and procedure can be daunting. For families and fiduciaries with many entities owned or controlled, the project may require annual internal controls but now also offers an opportunity to evaluate and re-evaluate integration and coordination of reportable activities. The Withers Compliance and Reporting Project provides tax compliance and reporting management in newer or recently expanded compliance areas, as well as minimizing redundant responsibilities among key persons.

Some of the key areas for compliance reporting integration and coordination are:

  • New for 2022, any entity formed in the US or registered to do business in the US will need to make a federal informational filing to report the identity of those who own or control such entity(ies), under the Corporate Transparency Act (or “CTA”).
  • State entity formation or registration to do business, which requires the identification of the direct applicant and sometimes identification of the person in a position of management of the entity.
  • Application of a US tax identification number by filing IRS Forms SS-4, which will require the identity of a “responsible person.”
  • US partnerships compliance which requires the identity of a “partnership representative” even though a partnership representative need not be an individual (or even a partner of the partnership), but must have a “substantial presence” in the United States
  • Non-US owned US disregarded entities and filing of IRS Form 5472, which will require disclosure of the non-US owner(s).
  • Bureau of Economic Analysis (“BEA”) annual and periodic filings, which requires reporting of inbound and outbound investment activities.
  • FATCA and CRS annual and periodic filings, which will require management of and consistent reporting relating to banking, financial, and investment account reporting.

We are often and regularly involved with family and fiduciary investment advisory services so are well positioned to draw on extensive experience in representing sophisticated investors and the structures through which they invest.

How we can help…

We understand that the issues associated with investment partnerships and funds are often complex and must be understood within the context of specific investors’ concerns.

Our customized review process can include the following considerations:

  • Evaluation of entities and entity activities to identify and isolate owners and those who control entities and the activities of those entities for purposes of evaluating reporting obligations, such as CTA, BEA, FATCA, CRS and/or other annual and periodic reporting obligations.
  • Evaluation of an appropriate designated person who can consistently be identified as a person in control and/or as an owner of a subject entity;
  • Coordination of reporting obligations, timing, and data management;
  • Execution of reporting obligations;
  • Identification and minimization of risks of confusing or conflicting information arising from varied and diverse compliance obligations;
  • Coordination with relevant government agencies to avoid or mitigate compliance lapses;
  • Compliance with US and/or non-US know-your-client and anti-money laundering requirements; and/or
  • Ongoing transactional needs, including service as the contact point to facilitate prompt responses to inquiries raised by investment partnerships and funds from time to time.

US Key Contacts…

Bill Kambas, Eva Farkas-DiNardo, David Guin, Sara Kyung, Michael Steffany, Victoria Diaz, Shannon Smith, Christina Baltz, Thomas Hart

EU Key Contacts…

Richard Cassel, Jay Krause

Authors