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  • Writer's pictureJenny Rozelle, Host of Legal Tea

Current Trends - Corporate Transparency Act - Episode 125


Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle. Welcome back for another Legal Tea episode today, episode one hundred and twenty five – and happy 2024! Here we are … another year. Wild! Well, thanks for giving me some grace to take last week off – as you know, there’s always a new episode of Legal Tea on Tuesdays, but last week fell the day after Christmas. The month of December was crazy. Lots of holiday parties – client holiday parties, family gatherings, celebrate my husband’s birthday via a surprise part – so time just got away from me and I was pushed against the wall with recording. So, ultimately I was like, “You know what – it’d drop the day after Christmas. Let’s take the week off to give me a chance to catch up!” That’s exactly what I did. Here I am – ready to rock and roll for today’s episode, which is a “current trends” type of episode.

On these “current trends” episodes, we dive into something in the current time or that I’ve stumbled across on the news or social media, that is pertinent to my little estate and elder law world. Well, today’s episode is more of the “current times” because today, we’re going to be talking about something that if YOU are a business owner or KNOW of a business owner, this episode is super applicable – because we are talking about something called the Corporate Transparency Act that has officially started as of … well, like today. It was enacted by Congress in 2021, but it didn’t go into effect until … 2024. So, here we are, friends!

Now, the Corporate Transparency Act is something that applies to owners of a business – businesses like LLCs, corporations, etc. There’s a list of types of businesses that are exempt from the Corporate Transparency Act, and most on that last are either 1) heavily regulated already – so think of like financial services, banks, etc. – or 2) are those that are fairly large. To count as “large” businesses that have more than 20 full-time employees, have gross receipts and sales in excess of $5 Million Dollars, and are also located in the US. If you fit this definition of “large” you also don’t count and the Corporate Transparency Act does not apply to you. Otherwise, if you’re not on the short list of exempt organizations, the Corporate Transparency Act most definitely applies to you – and you should not only listen to this episode, but also seek counsel from an accountant and/or attorney.

Alrighty, let’s start with … what is it? What is the Corporate Transparency Act?

The purpose of the Corporate Transparency Act is to create a comprehensive and secure database of “who” owns business entities with the goal to prevent the use of shell companies which are being used for money laundering and other “bad” activities. As I discussed a second ago, it applies to A LOT of businesses, but not all. Here’s more of a scoop on that front:

“Reporting companies” (a term of art) are now required to disclosed very specific identification information of its “beneficial owners” (another term of art) to the US Department of Treasury’s Financial Crimes Enforcement Network (otherwise known or called, FinCEN). First, what is a, so-called, reporting company? A reporting company is a corporation, an LLC, or any other business entity, unless your company is considered exempt. There are 23 types of companies that are exempt (such as banks, credit unions, financial services, insurance companies, accounting firms, public utility companies, a “large” company as I talked about a second ago – over 20 full-time employees, do more than $5M in sales, etc.). So if your company makes the list of 23, you can forget about the Corporate Transparency Act.

So, if you qualify as a business that must report to the Financial Crimes Enforcement Network of the US Department of Treasury, then the business must submit a report to them with the following information: Legal name of the company, any DBAs, what state the business got formed in, address for the primary place of business, the tax identification number (like the EIN), AND information for all “beneficial owners.” Now, that is the other “term of art” I referenced earlier. So, let’s define it – then talk about what they have to submit. A “beneficial owner” is someone who owns NOT LESS THAN 25% of an ownership interest of the company OR who exercises “substantial control over the entity.” To fit the last qualifier, these are people like senior officers (CEOs, President, etc.), board members, manager of an LLC, etc. So when the business goes to report, they must disclose the following information for each beneficial owner: Legal name, date of birth, address, identification number form a driver’s license or passport, and also submit a scanned image of said driver’s license or passport.

Now, let’s shift to …. When does all of this start?

It’s easier to say RIGHT NOW, now that we’re in 2024. Though, let’s give this more teeth. The law is effective now – effective January 1, 2024. Though, from there, it depends on when the business was CREATED as to when you need to submit information to the US Department of Treasury – so if the business was in existence BEFORE January 1, 2024, the business has the entire calendar year of 2024 to do their initial report filing. Though, if the business is created AFTER January 1, 2024, you must submit a report to the US Department of Treasury within 90 days of forming the business. Then, starting in 2025, if businesses are started after 1/1/2025, they will have 30 days (not 90 days anymore) to submit a report to the US Department of Treasury.

So yeah, these are super important dates and things to know – if you have a business, my friends! If you have a family member or friend that has a business or recently started a business OR even about to start a business, maybe pass along to them this episode. This is SUCH important information and I fear that not many even know about it!

Alrighty, on that note, we should talk about … What happens if the business does not comply with the Corporate Transparency Act?

If a business willfully provides false or fraudulent information to the US Department of Treasury OR if there’s a total failure to SUBMIT a report in compliance with all these rules, there are some very serious penalties and fines. According to the Financial Crimes Enforcement Network, there could be a fine of up to $500 EACH DAY the violation continues; AND up to $10,000 fine and possible 2 years imprisonment. So yeah, these are harsh consequences.

Now, if I had to guess, they’d reserve the latter stuff (i..e imprisonment) for WILLFULLY providing inaccurate, false information (like … it’s straight up fraud, you know?) – like, I can’t see them throwing someone in prison for 2 years (like a Mom and Pop shop … who just didn’t even know about this change in the law) but this is as new to me as it is to you, so maybe I’m wrong in thinking the government is not going to be that harsh and mean.

So, that’s basically the scoop of the Corporate Transparency Act’s “what” “who” “when” etc. and before I got in ANY more detail, I should mention that this is brand spankin’ new, so it’s likely and honestly probable that the government continues to figure out how to get things implemented – for example, they somewhat recently raised the number of days reporting requirement for businesses created in 2024 from 30 to 90. So, please please please hear me loud and clear – it’s possible some tidbits, some things even in this episode may even become outdated as the government embraces this change and learns how to even organize themselves. So, if you have a business or know someone that has a business, first, the purpose of this episode is to call your attention to this change in the law, but second, to also encourage you to seek advice from a professional, like an attorney or CPA, that is able and willing to assist you with getting in compliance with the Corporate Transparency Act.

I think that’s all I’m about to share about the Corporate Transparency Act – I think it’s enough to encourage anyone that has an existing business OR that will be starting a business to make sure that this is incorporated into things appropriately. Honestly, this is probably a classic example of ensuring you are maintaining a relationship with professionals in your life like your estate attorney; like an accountant; like a financial advisor … or, at the very least, making sure you are making an intentional time to learning (whether it’s through podcasts, or magazines, or newspapers … whatever your cup of tea … yes, pun very much intended … like Legal Tea, get it?). I say this because can you imagine all the people that have absolutely no idea that this 1) got passed, but 2) is now in effect … now that we’re in 2024. That’s scary to think about.

Alrighty, let’s wrap this episode up, shall we? Next week, we’re back to the “celebrity estate planning” type of episode – and during that episode, we are going to dive into what happened estate-wise following the passing of our Margaritaville friend, Jimmy Buffett. As soon as he passed away, I made a mental note to keep an eye out for things estate-wise that has happened following his death (for an episode here). I mean, who doesn’t know Jimmy Buffett? I say that … but at a Christmas recently, I discovered my cousin and his girlfriend have never seen, NOR heard of The Sound of Music or Annie, so maybe I’ve hit the point in my life where I talk about things that I think people know…but the young’ins don’t. Ha! Anyway, alrighty, Legal Tea Listeners, talk to you next week and stay well!

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