#35 | The Corporate Transparency Act

Jon “Jag” Gay: Welcome back to Protecting & Preserving Wealth. I am Jon Jag Gay, I am joined by Bruce Hosler and Jason Hosler today. Good to be with both of you.

Bruce Hosler: Good morning, Jon. Thanks for having us today.

Jason Hosler: Good to be here.

Jon: We’re talking today about something that I know affects me as a small business owner and will affect many of our listeners who are business owners of any size. That is the Corporate Transparency Act, the CTA. Bruce, what is it?

Bruce: Well, this is new legislation, Jon. This is coming from a department of the Treasury Department that a lot of people are not familiar with. A lot of people have heard of FinCEN, F-I-N-C-E-N. If they have international bank accounts of $10,000 or more, they have to file an FBAR every year. Now, FinCEN is a little-known department inside the Treasury Department. We have the Treasury Department that’s over the IRS. This is another department. They’re coming out with a new regulation effective January 1st of 2024.

This is going to mandate that certain businesses, and this includes mostly all small businesses, disclose detailed information about their beneficial owners, who are essentially the people that are the owners and the managers of these businesses. They’re going to have to disclose all of their personal information, contact information, and everything to FinCEN on this new application. It’s brand new regulations.

Jason: It’s not only that, but it’s much more. It includes the new BOI regulations. That’s the Beneficial Ownership Information.

Jon: What is BOI or Beneficial Ownership Information?

Jason: That is who is the actual beneficial owner of any entity, like an owner, member, or shareholders of a business who directly or indirectly exercise substantial control over a reporting company or control at least 25% of the ownership interest or shares.

Jon: In my case, having a sole member LLC, that’s my business, would that include my wife or would it just be me?

Bruce: Right now, it’s just going to be you. You don’t have to report her stuff. You’re going to want to try and protect her if you can. What we don’t know is they’re promising this information is going to be kept in a secure manner but listen to this, FinCEN will permit federal, state, local, and tribal officials, as well as certain foreign officials who submit a request to the US Federal Government Agency to obtain beneficial owner information from authorized activities related to national security intelligence and law enforcement.

Basically, they’re just saying, “Hey, anybody that owns a business, your information now is going to be available to us. We know who you are and we know where you are.” It includes even a photo ID like a driver’s license or a passport photo that you have to include on the information that they’re asking for. It is the most invasive thing I think that a lot of business owners have never seen or heard of in the United States up to this point.

Jon: I want to see if I’m understanding the genesis for this correctly, guys. I would imagine this started because of some large businesses, whether it’s shell corporations, what other shady things that you see in all like the crime shows on TV when they’re investigating the crime and folks trying to game the system. I’d imagine that’s where this started, but they’re really taking it to a whole another level to have everybody’s information available to all government entities.

Bruce: They say the purpose of the law is to assist law enforcement in ferreting out money laundering. That all sounds good, right?

Jon: Yes.

Bruce: By providing this information, they’re going to have a lot of information on you that you haven’t provided to the federal government in this manner to this department up till now. Then the question is really who all is going to have access to it and when like that. Some people may find this very demanding. The big deal is if you’re not paying attention, it’s going to get expensive because the penalty for non-compliance, if you don’t give this information at the time that you need to, it’s going to cost you $500 per day, and potentially jail time.

Jon: Whoa. That’s serious stuff.

Bruce: It gets expensive very quickly.

Jon: You mentioned submitting this information on time. Do companies need to report this information now? Is there a timeframe on it?

Bruce: You can’t report it now, you can’t start reporting it until January 1 of 2024. Jason, what about a new company that forms next year? How long do they have?

Jason: For new companies that form next year in 2024, you’ll only have 90 days to do your initial filing after forming a new entity. They’re not giving you very much time to comply with that for new entities. However, for existing entities, when we cross them into 2024, they have until January 1st of 2025 to comply.

Bruce: We’re advising clients to take a deep breath, let’s see how the first filings go, what comes out with more information, how the technology’s working. They have all of 2024 to be able to file this. It’s both the accounting and the legal community that is looking at this. We’re not sure who’s going to provide these services. They may need to seek some professional help. When we get into January, February next year, we’ll certainly have another podcast on this and we’re going to address this issue and give some more information.

There are some professional service companies that are starting to poke their heads up, but I haven’t done any research on them yet, so I’m not in the ability or a place to refer them or recommend them. I want to just make our listeners aware, this law is coming and it is going to be here now January 1, 2024 for new entities, especially right away.

Jon: I always appreciate the fact that you and your team, Bruce, are looking forward to what’s coming down the pike as far as financial obligations for both personal and for businesses as well. Do we know if there are going to be any fees charged for submitting this application?

Bruce: Right now, there are no fees with this application. You could say there’s no fee to file your tax return either except for the taxes you owe. Right now, there’s no fee. There is a penalty if you don’t file it timely. The key is, is you have to get all your information together. That might not be a small thing for a lot of people.

Jon: Got it. Bruce, how will companies report this BOI information?

Bruce: They’re going to go to the FinCEN website and they’re looking for fincen.gov/boi. When they get there, it has beneficial owner information, how to file, prepare, and it has a file. There’s a place right on there where you click and it says beginning January 1, 2024. They’re going to go in there and they’ll begin accepting reports at that time. They’re going to go to that website and that’s what it looks like right now. Now, this could all change because this is brand new for the government. They’re just figuring this out right now on what’s going on.

I think we’re going to see some changes and that’s why I’m cautioning my listeners and saying, if you have an existing entity, make sure that you’re starting to gather all the stuff that you need to gather for this but don’t be in such a hurry to file this on January 1st.

Jon: It’s most businesses, but Jason, are there exceptions or what companies are required to report this stuff versus which ones are exempt from it?

Jason: Yes. There are a number of types of businesses that the government has exempted from it. They’ve provided a list of those that you can access on the FinCEN website. Basically, it’s exempting businesses that already are complying with various types of regulation for the government for understanding beneficial owner interest. That would be banks, credit unions, depository institutions, broker-dealers, security exchanges, et cetera. Many of these are connected to the financial industry. If you’re not on that list that they provide of the exemptions, it’s going to be pretty much all other entities that this applies to.

Bruce: You look at the last one on that list, Jason, large operating company. Basically, this is what FinCEN’s saying, we don’t think that big companies are who we have to worry about with money laundering. We think it’s all you little guys, and we don’t trust you and we want you to give us your information.

Jon: That is interesting. We’re going to put the links and the resources of the show notes to this podcast that the guys have just mentioned. Bruce, I know you’re talking about a six-step plan for your clients. Again, all subject to change as this plays out in the beginning of ’24. What are the things you’re advising your clients to do?

Bruce: I have a good friend, Juliet Peters owns Framework Legal, and she put out some lists of what businesses should do right away. I’m going to reference some of her list. I like what she said. She says, “You need, number one, to know your beneficial owners. You need to gather all their information if they control at least 25% ownership.” For now, you need their names, a residential address, background information can come in handy. Eventually, you’re going to need to submit a valid identification image, that means a driver’s license or passport.

Number two, you need to designate what I would say is your compliance person at your firm that would be in charge of the CTA and you want someone that is able to handle all this pre-work and gather this stuff right now, getting all the information that’s required. You want to make sure your records, number three, are updated. Your legal records on your business structure, the ownership. Make sure that any of those changes that you need to make you get done before the end of the year. Accuracy is the name of the game.

When you make your FinCEN filing later in the year, it’s all going to be current. Number four, you should familiarize yourself with the reporting form. Now, when they introduce this after the first of the year, you can go in and look in that and you figure out everything they’re asking, and then your compliance person can gather that information before they go to starting the reporting process. I would say it’s kind of a little two-step. As you go on, you look at what they’re requesting, you gather that information and then you’re going to go on and file later on after that.

Now, Juliet is suggesting that you seek professional help. Now, there’s a couple of businesses she’s identified in her article. I haven’t done any due diligence on them, so I’m not going to mention them here on the podcast, but I promise in the first quarter of next year, we’ll address this and we’ll look at these corporations and see if there’s somebody that can do the filing for you. Then finally, you need to stay informed because the legal landscape is changing on this and you need to keep your radar up for updates from regulatory bodies.

I just heard on the news this morning that the Congress is planning on doing a big tax update at the end of this year because a lot of things have sunsetted. If they’re doing a big tax update, this could be affected. They could delay this because it’s so new. There’s other things coming, so you need to stay informed. Those six things I think are great for people to consider.

Jon: Worth mentioning, we’re recording this podcast on November 29th, so all information accurate as of today. As Bruce said, things could change in the time before this thing goes into effect. Jason, what stuff are you looking at for the end of ’23 before we turn the calendar to ’24 that folks should be doing?

Jason: Yes, we have a few suggestions that folks should consider. Number one, if you were planning to open a new entity this next year in 2024, you should do it now. If you establish your new LLCs or other entities before we cross over into January, you don’t have to deal with just the 90 days to do that initial filing. We’ll get the entire 2024 year so we can take a step back that way and see how this is exactly going to play out. Number two, we’d recommend that you close entities that aren’t currently active.

If you have any that you’re not using currently, go ahead and close them up so that you don’t have to actually file for entities that aren’t doing business. Number three, you probably want to stop filing in states where they promote anonymity. We’re talking about the North Dakota, the Wyoming, the Nevada state, where people will file entities to have that anonymity. Do yourself a favor, file where you’re doing business and embrace the fact that you’re not going to really be anonymous anymore.

The number four is if you’re buying or selling a business, don’t overlook this in your due diligence. This is going to become a part of that whole process that you’re going to need to make sure that the CTA is accounted for.

Jon: That’s really interesting, especially you mentioned those states where there’s anonymity, Jason, because it seems this is a case where that federal law is likely going to supersede any state law where that anonymity, like you said, is gone. For me, filing my business here in Michigan, there’s not a lot that you guys have discussed today that I don’t already have on file with the State of Michigan, aside from maybe a driver’s license photo. For some folks in some states, there may not be a huge change here, but I think that’s going to be dependent state by state. As always, check with your local authorities on that as well.

Bruce: Yes, Jon, this is a big new change in the law. There’s a lot available on the FinCEN website. I would recommend that our listeners also look for, there’s a small entity compliance guide. It’s on there. It’s only 56 pages, so a little bit of light reading for our listeners, but that’s available for free on the website under the beneficial owner information that Small Entity Compliance Guide. That’s what we’re talking to is owners of small entities. If you have an LLC and you file it for your rental property, guess what folks? You probably have to comply with this law. This is going to apply to a lot of our listeners that have legal entities for liability purposes.

Jon: We’re going to link to, again, that FinCEN website in our show notes as well as to the Hosler Wealth Management website. If folks want to talk to you, especially in the beginning of the year when some of this stuff comes into focus. Bruce, Jason, for our listeners, if they want to talk to you about this or anything related to their finances or their future, how do they best reach you at Hosler Wealth Management?

Jason: Our number up here in Prescott is 928-778-7666.

Bruce: Of course, you can get us on the website at https://hoslerwm.com, and in Scottsdale, 480-994-7342.

Jon: Really appreciate it. As I said earlier guys, it’s great that you’re looking forward at what’s coming down the line for 2024. We’ll talk soon.

Bruce: Thanks, Jon.

Jason: Thank you, Jon.

Jon: Securities and advisory services offered through Commonwealth Financial Network, member of FINRA/SIPC, a registered investment advisor. Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.

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