FINCEN’s Corporate Transparency Act: What Every Business Owner Needs to Know | Repair The Roof Podcast

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"With penalties of up to three years in prison and a $10,000 fine for intentionally not complying, the implications of noncompliance are severe.”

Ever wondered whether your business complies with the latest governmental regulations, or if you're at risk of severe penalties? Our host, Attorney Ted Gudorf, unravels the complexities of the Corporate Transparency Act. This influential legislation could impact anyone owning, controlling, or forming U.S. corporations and LLCs by mandating the reporting of detailed identifying information to FinCEN (Financial Crimes Enforcement Network).

Ted breaks down the nitty-gritty of who counts as a beneficial owner, what exact information you need to provide, and the deadlines for companies, especially those formed before vs. after the pivotal date of January 1, 2024. Whether you're an entrepreneur or a legal practitioner, mastering these details is critical to avoid hefty fines or even imprisonment.

Staying ahead of regulatory changes is not just smart—it's necessary for safeguarding your business. Using the Corporate Transparency Act as a prime example, our host stresses proactive engagement with evolving legal landscapes to ensure your operations remain smooth and uninterrupted. By keeping informed, you protect your interests and prepare for future challenges in a stable environment. Help is one step away at Gudorf Law Group.

Key Topics:

• Corporate Transparency Act Overview (00:00)
• Penalties for Non-Compliance (01:54)
• Transition Period and Reporting Timelines (02:59)
• Defining Beneficial Owners (05:14)
• Reporting Obligations for Applicants (07:33)
• Privacy Concerns and Annual Filing Requirement (09:44)
• Exemptions and Key Takeaways (13:53)

You may have spent years building your business or investing in various companies. Now, a new piece of legislation called the Corporate Transparency Act (CTA) is set to change the landscape for business owners across the United States. Whether you're still actively involved in business or have investments in corporations or LLCs, it's crucial to understand how this act might affect you.

The Corporate Transparency Act mandates that those who own, control, or form most corporations and LLCs must report identifying information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury. This blog post will break down what the CTA means for you, why it's being implemented, and what steps you need to take to ensure compliance.

Key Takeaways

Before we dive into the details, here are the core insights you need to know about the Corporate Transparency Act:

1. Reporting Requirement: Most U.S. companies must now report information about their beneficial owners to FinCEN.
2. Timeline: Existing companies have until January 1, 2025, to file. New companies formed after January 1, 2024, must file within 30 days of formation.
3. Beneficial Owners: This includes individuals who exercise substantial control, own 25% or more, or receive substantial economic benefits from the company.
4. Required Information: Companies must report details such as legal names, dates of birth, addresses, and identification documents of beneficial owners.
5. Penalties: Non-compliance can result in significant fines and even imprisonment.
6. Privacy Concerns: Access to the reported information is limited to specific circumstances, primarily for law enforcement purposes.
7. Exemptions: Certain types of companies, including some larger businesses and publicly traded companies, are exempt from full reporting.

Now, let's explore each of these points in more detail to ensure you have a comprehensive understanding of the Corporate Transparency Act and its implications for retirees.

Main Content

What is the Corporate Transparency Act?

The Corporate Transparency Act is a significant piece of legislation designed to combat money laundering, tax fraud, and other financial crimes. It requires most corporations, limited liability companies (LLCs), and similar entities to report information about their beneficial owners to FinCEN.

For retirees who may have established businesses during their working years or who have investments in various companies, this act introduces new responsibilities that cannot be ignored.

Why Was the Corporate Transparency Act Introduced?

To understand the importance of the CTA, it's helpful to consider its purpose. The act aims to:

1. Prevent Financial Crimes: By requiring companies to disclose their true owners, the act makes it harder for criminals to hide behind shell companies.
2. Enhance National Security: Improved transparency helps authorities track potential terrorist financing and other threats.
3. Align with International Standards: Many other countries already have similar beneficial ownership reporting requirements.

While these goals are commendable, it's important to note that the act has drawn some criticism. As Attorney Ted Goodarff points out in the podcast, "With 2 million companies formed annually in the United States, only about 2,000 may involve bad actors, just 0.1% of 1%. Why should all of the businesses bear the burden for this small percentage?"

This perspective highlights the balance that legislators must strike between preventing financial crimes and avoiding undue burden on legitimate businesses.

Who Needs to Report Under the Corporate Transparency Act?

If you're a retiree who owns or has substantial control over a U.S. company, you likely need to report under the CTA. The act defines "beneficial owners" as individuals who:

1. Exercise substantial control over a corporation or LLC formed in a U.S. state or Indian territory
2. Own 25% or more of the company
3. Receive substantial economic benefits from the company's assets

It's crucial to note that these criteria are not mutually exclusive. You could be considered a beneficial owner if you meet any one of these conditions or any combination of them.

What Information Needs to Be Reported?

Under the Corporate Transparency Act, companies need to report two types of information: details about the reporting company itself and information about each beneficial owner.

For the reporting company, you need to provide:

1. The full legal name of the reporting company
2. Any trade name or "doing business as" names
3. The business street address of the reporting company
4. The jurisdiction where the company was formed
5. The company's IRS tax identification number

For each beneficial owner, you must report:

1. Their full legal name
2. Their date of birth
3. A current residential or business street address
4. An image of a government-issued identification document, such as a passport or driver's license

It's important to note that financial information or details about the business purpose or operations are not required. The focus is solely on identifying the individuals behind the company.

When Do You Need to Start Reporting?

The timeline for reporting under the Corporate Transparency Act depends on when your company was formed:

• Existing Companies: If your company was started before January 1, 2024, you have a transition period. These companies have from January 1, 2024, until January 1, 2025, to file the required report with FinCEN.

• New Companies: For companies started after January 1, 2024, the timeline is more immediate. These companies must file the report within 30 days of company formation.

This timeline means that if you're considering starting a new business in retirement, you'll need to be prepared to provide this information right from the start.

Keeping Information Up-to-Date

Accuracy is crucial when filing under the Corporate Transparency Act. If any of the information on the report was inaccurate when it was filed, or if there are any changes to the reported information, the reporting company has an obligation to file a corrected or updated report. This must be done within 30 calendar days after becoming aware of the inaccuracy or change.

For retirees who may be less actively involved in day-to-day business operations, it's important to have systems in place to ensure you're aware of any changes that might necessitate an updated filing.

Complex Ownership Structures

If you've set up a more complex business structure, perhaps for estate planning or tax purposes, it's important to understand how the Corporate Transparency Act deals with these arrangements.

If one company owns another company, you need to report back to the human being that owns the company that owns the other one. In other words, the reporting always needs to trace back to at least one natural person.

This provision is designed to prevent the use of complex corporate structures to obscure true ownership. For retirees who may have set up family businesses or investment structures, this means you'll need to carefully consider who qualifies as a beneficial owner under these rules.

Penalties for Non-Compliance

The Corporate Transparency Act includes severe penalties for non-compliance. These penalties apply to three types of actions:

1. Providing false information or fake ID documents to FinCEN
2. Willfully failing to provide complete or updated beneficial ownership information
3. Receiving a subpoena and knowingly disclosing its existence or other requests for beneficial ownership information (unless necessary to fulfill the request or authorized by the enforcement agency)

If you engage in any of these actions, you can be subject to:

• A civil penalty of up to $10,000
• Under Title 18, penalties of up to $250,000 for individuals and $500,000 for organizations
• Up to three years in prison

However, it's important to note that these penalties are for willful non-compliance. If you're simply negligent - that is, you didn't know you had to comply - you're not likely to face these severe consequences. The Secretary of the Treasury has the authority to waive penalties if the failure to comply was due to reasonable cause and not willful neglect.

Privacy Concerns

As a retiree, you may have concerns about the privacy implications of reporting this information. Rest assured, the Corporate Transparency Act includes provisions to protect the privacy of the reported information.

According to the law, someone can only access your beneficial ownership information that's been reported to FinCEN in three specific ways:

1. A request by a local, tribal, state, or federal law enforcement agency
2. A request made by a federal agency on behalf of a law enforcement agency of another country (they must prove to FinCEN that they have a legitimate right to this information)
3. A request made by a financial institution, but only with your consent as the customer

This means that unless you're engaged in illegal activities, you don't have much to worry about. Even your bank can't access this information without your explicit consent.

Exemptions from Reporting

While the Corporate Transparency Act applies to most U.S. companies, there are some exemptions. These include:

• Publicly traded companies
• Financial institutions
• Exempt non-profit organizations
• Larger companies with more than 20 full-time U.S. employees, over $5 million in gross receipts, and a U.S. office

Even if your company is exempt, you still need to file a report with FinCEN stating the exemption and providing basic information such as name, address, birthdate, and identification.

International Considerations

If you're a retiree with international business interests, it's worth noting that offshore corporations or LLCs are not subject to this law unless they do business in the United States. This creates a clear alternative for those seeking to maintain privacy, although it's important to consult with a legal professional before making any decisions based on this information.

Examples and Anecdotes

To illustrate how the Corporate Transparency Act might affect retirees in various situations, let's consider a few examples:

1. The Family Business Owner: Imagine you're a 68-year-old retiree who still owns 30% of the family manufacturing business you started 40 years ago. Your two children each own 35%. Under the CTA, all three of you would be considered beneficial owners and would need to be reported to FinCEN.

2. The Silent Partner: Perhaps you're a 72-year-old retiree who invested in your nephew's tech startup five years ago. You own 26% of the company but aren't involved in day-to-day operations. Despite your passive role, you'd still need to be reported as a beneficial owner due to your ownership percentage.

3. The Real Estate Investor: Let's say you're a 65-year-old retiree who owns several rental properties through a series of LLCs for liability protection. Each of these LLCs would likely need to file a report with FinCEN, listing you as the beneficial owner.

4. The Board Member: Imagine you're a 70-year-old retiree who serves on the board of directors for a small local bank. While you don't own 25% of the company, your position might be considered as exercising "substantial control," potentially making you a beneficial owner who needs to be reported.

These examples illustrate how the Corporate Transparency Act can affect retirees in various business and investment situations. It's crucial to evaluate your own circumstances and consult with a legal professional if you're unsure about your reporting obligations.

Conclusion

The Corporate Transparency Act represents a significant change in how business ownership is reported in the United States. For retirees who own or control businesses, it introduces new responsibilities that cannot be ignored.

While the act aims to combat financial crimes and enhance national security, it also places a new burden on legitimate businesses. As we've seen, the penalties for non-compliance can be severe, making it crucial to understand and follow the new reporting requirements.

Key points to remember:

1. Most U.S. companies need to report beneficial ownership information to FinCEN.
2. Existing companies have until January 1, 2025, to file, while new companies must file within 30 days of formation.
3. Reported information includes details about the company and its beneficial owners.
4. While there are privacy protections in place, the information can be accessed by law enforcement agencies under certain circumstances.
5. Some companies are exempt from full reporting, but may still need to file a report claiming the exemption.

As a retiree, it's important to stay informed about these changes and how they might affect your business interests. If you're unsure about your obligations under the Corporate Transparency Act, don't hesitate to seek professional legal advice. Remember, staying compliant not only helps you avoid penalties but also contributes to a more transparent and secure business environment for everyone.

*This blog post is based on the insights shared by Gudorf Financial Group. For personalized advice tailored to your unique circumstances, always consult a financial, legal, or tax professional.*

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