This post gives some background for our clients who may need to make a Corporate Transparency Act (CTA) filing. This is a brief summary intended for our existing clients who are business owners. A detailed compliance guide can be found at www.fincen.gov/boi.
The Basics
The CTA is a federal anti-money laundering statute and a classic example of how the many are punished for the bad behavior of a few. (Or as the kids would say, this is why we can’t have nice things.)
LLCs and other business entities are generally used as just that—entities for engaging in business activities. Our firm is an LLC, and most of our business clients operate using LLCs.
Unfortunately, less scrupulous actors also use LLCs and other business entities. Criminals who need (want?) to launder money often do so using multiple (think hundreds of) LLCs or trusts that are located in multiple states and/or overseas and do not have to disclose who owns them. The criminals funnel illicit money through these shell companies in a way that makes it very difficult for the government to sort out where the money came from and where it ended up.
The CTA is designed to thwart these bad actors by forcing most LLCs and business entities to disclose who their owners are to the federal government, with stiff penalties for failure to do so. We expect the government to use the penalties against people perceived as bad actors, and be lenient with legitimate businesses who make honest mistakes or miss a deadline in good faith. But the penalties are significant and we don’t want any of our clients to risk ending up on the wrong end of that.
Do I Have to File?
Probably. There are some exemptions (listed in the compliance guide) but most small businesses will have to file. We can discuss this further if you think you are exempt.
What Is Involved?
The good news is that the filing is relatively simple. The company must disclose the names of its owners and each owner’s home address. It also must provide a valid ID for each owner with the owner’s current address on it. (We’ve had some clients have to go to the DMV and update their license to comply. There is no getting around this and honestly this is the most painful part for those folks.)
We are happy to make the filing on your behalf if need be, or you can follow the compliance guide and do this on your own. One quirk is that an owner is defined broadly in the statute to include people who have certain types of control or decision making authority for the company even if they do not have any equity. The compliance guide explains this and we are happy to weigh in on who should be listed as an owner on request.
When Is This Required?
For new businesses, the filing must be made when we register the company. For existing businesses, the filing must be made by the end of 2024.
What is The Process?
Right now, we have been attempting to get our clients who have existing LLCs in compliance whenever we are working with them on estate plans or other projects. At some point, we will send a bulk email letting our clients know about this rule and offering to help.
For those who want our help, we ask for a valid ID and ensure the filing is completed properly. We have been charging hourly for this and typically end up spending an hour or so on the filing by the time we gather and verify the information, make the filing, and provide the confirmation to the client. In our experience most of our clients would prefer to just have us do the filing but we are aware of a couple who have successfully done it on their own.
Next Steps
If you are an existing client who is a business owner, contact us if you would like help with this. We will typically start with a brief phone call to get organized, then work from there.