In my last two columns, we reviewed the new Corporate Transparency Act, who must comply by filing a report, and the very narrow exceptions to the law.
The law, expected to affect more than 30 million small and medium-sized businesses, is effective Jan. 1, 2024. Failure to timely file the report could result in fines of $500 per day, up to $10,000 maximum, or two years’ jail time.
Also see: Who must file paperwork for new law aimed at 30 million small businesses?
So, what now?
Does the law apply to you?
If you own or have control over any business entity, whether it’s active or not, in the United States, you will need to determine (or make certain the entity is making the determination) whether the CTA applies to your entity. If it does, the entity will need to determine who are the “beneficial owners” of the entity and gather the required information and documentation.
In some instances, for example, a single member limited liability company where the member is an individual and acts as the sole manager — it may be simple to do it yourself. The form for filing is supposed to be available on the Financial Crimes Enforcement Network (“FinCEN”) website at fincen.gov/boi on Jan. 1.
In many cases, determining whether an entity needs to report and, if so, identifying the “beneficial owners” will require careful analysis by your lawyer or CPA.
For example, a “beneficial owner” is defined in part as a direct or “indirect” owner of 25% or more of the company. If a married couple together owns 25%, is that 12.5% each and neither is a beneficial owner, or do they directly own 12.5% and indirectly own their spouse’s 12.5%, thus both are beneficial owners?
This could depend on the state law of the spouses’ residence and/or the entity’s formation state. Ownership is not the only area that will need analysis.
What about an entity that has been suspended by the state of organization? What beneficiaries and fiduciaries of a trust that owns a reporting entity are considered beneficial owners? What if another entity or a minor owns some of a reporting entity?
Keep in mind, if you get it wrong, you may have only 30 days to file a corrected report.
Resources available
Managers and officers of entities should contact their lawyer or CPA about CTA compliance.
Note: in an earlier article, I mentioned that the AICPA had advised its members that handling CTA matters may be considered the unauthorized practice of law and advised against it. To clarify, what the AICPA said was, “Providing technical or interpretive advice on CTA may rise to the practice of law.” They did not specifically advise against it.
So, talk to your CPA or your attorney soon to determine whether the law applies to you and whether your advisor is available to assist you with compliance.
FinCEN has also posted a Small Entity Compliance Guide at fincen.gov/boi/small-entity-compliance-guide The guide is 57 pages long but does provide useful information.
It also offered a webinar on CTA compliance but was booked up within a very short time and closed to further registrations. They have indicated that there will be additional webinars within the coming weeks.
FinCEN identifier
Individuals who are likely to have to report their information as a “beneficial owner” of several companies, as well as reporting companies with many affiliated entities, may want to consider obtaining a FinCEN identifier through the FinCEN website.
Once a FinCEN identifier is obtained, the beneficial owner need only give that number to reporting companies, rather than having to provide their personal information to each and every company of which they are a beneficial owner. In addition, an update to the FinCEN Identifier will update the reports for all entities for which the beneficial owner is listed.
Individuals will be able to request a FinCEN identifier on or after Jan. 1 by completing an online form.
Individuals will need to provide their full legal name, date of birth, address, 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 beneficial ownership information report when they submit the report. Once submitted, the reporting company will receive a FinCEN identifier unique to that company.
It is expected that these FinCEN identifiers will ease privacy concerns and facilitate updating reports in the future. This is important since reporting companies have only 30 days in which to file the report following any change in information, including a beneficial owner’s change in address or a renewed driver’s license.
Look out for fraud
As expected, new companies are popping up offering to assist reporting companies with their CTA compliance for a fee. Whether these companies are legitimate and have lawyers or other professionals involved remains to be seen. That is why it’s prudent to check with your existing advisors.
Furthermore, FinCEN has an alert on its website that reads as follows:
“FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.”
In addition, your social security number is not one of the items of information you need to give in the beneficial ownership report. Do not give out your social security number.
The Corporate Transparency Act is aimed at money laundering and other nefarious deeds conducted under cover of shell companies. But the law is far-reaching and has many sharp edges which may cut the unaware. With more than 30 million entities required to file the report in the span of one-year, being proactive is a necessity. Good luck out there!
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her at [email protected]
