The Corporate Transparency Act – An Invasion of Privacy

We Are Quickly Losing Our Right to Privacy

There is a new Federal law, called the Corporate Transparency Act (“CTA”) which will impact almost all LLCs, corporations, limited partnerships, and other closely held entities. There are a few exceptions, but this act is targeted at small businesses and does not apply to larger corporations that have other reporting requirements.

The Law Becomes Effective January 1, 2024.

The purpose of the CTA is to create a national database of companies in the U.S. that identifies the human beings behind the companies as owners or control persons. The justification for this aggressive invasion of privacy is that the law is part of an increasing effort to combat money-laundering, terrorism, tax evasion and other financial crimes. Congress intended to try to help law enforcement by creating this national database of organizations that might be involved in such activities, but it will apply even if the entity is not so involved.

The Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the United Stated Treasury Department (but is not part of the IRS), will be in charge of creating and maintaining the database, which as of now will not be of public record but available to a variety of agencies and possibly others in the future.

The potential for weaponization of this information is scary!

All “reporting companies” will be required to file reports with FinCEN that provide certain information regarding the companies and all the “beneficial owners” of the companies – all the humans behind the companies whether their role is as an owner, and officer, an investor, or a beneficiary. It is not entirely clear yet, but inheritors and certain trusts may also have to report.

This new law will affect virtually all small family businesses, including even LLCs and other entities designed only to hold real estate and conduct no active business activities. Even if an entity has only one owner and that entity is ignored for Federal income tax purposes (such as a single-member LLC), that entity still will have to file reports with FinCEN.

The rule goes into effect January 1, 2024. For entities that already exist by that date, their initial reports are due by January 1, 2025. For entities created on or after that date, their initial reports are due within 30 days from the creation of the entity. As of now, there are no extensions available.

Criminal & Civil Penalties

There are stiff civil and criminal penalties for failing to file – this is not something that can be missed.

The penalties include possible imprisonment, if someone fails to comply with these new rules and there are severe civil and criminal penalties for failing to file. This is not a risk that should be taken lightly. Civil penalties can be up to $500 per day and up to $10,000, and imprisonment of up to two years.

If you have any interest in a closely held entity, such as an LLC, corporation, or limited partnership, or if you exert significant control over any such entity (which might include any officer, director, manager, chief financial officer or investment trustee) then you may be subject to these requirements. If so then you may be responsible for filing reports with FinCEN.

Given the difficulties of identifying all the entities and persons that will have to report, we suggest that you begin now to assemble a list of every privately held entity that you own an interest in or exert control over. You should try to obtain a copy of the certificate that was filed with the state where the entity was formed as well.

We believe that assembling such a comprehensive list may be prudent to avoid missing any entities, particularly considering the penalties that may be imposed. For purposes of clarification, you are responsible for filing the reports. If you wish for our assistance in any way, you will need to contact us and engage us in writing to do so.

Information Required to File

Both companies and beneficial owners are required to file reports with FinCEN.

Reporting Company

• Full legal name
• Any trade name or “doing business as” (DBA) name
• Complete current U.S. address
  • Report the address of the principal place of business in United States, or, if the reporting company’s principal place of business is not in the United States, the primary location in the United States where the company conducts business.
• State, Tribal, or foreign jurisdiction of formation
• For a foreign reporting company only, State or Tribal jurisdiction of first registration
• Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN))
  • If a foreign reporting company has not been issued a TIN, report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

Each Beneficial Owner and Company Applicant

• Full legal name
• Date of birth
• Complete current address
  • Report the individual’s residential street address, except for company applicants who form or register a company in the course of their business, such as paralegals. For such individuals, report the business street address. The address is not required to be in the United States.
• Unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents:
  • S. passport
  • State driver’s license
  • Identification document issued by a state, local government, or tribe
  • If an individual does not have any of the previous documents, foreign passport

If you do wish to engage Life & Legacy Law to help with this new requirement, please contact us as soon as possible and we will prepare a separate written engagement with you that will define the scope of our assistance. If engaged to do so, we will begin the process of determining if it is a reporting entity and whether you or someone else will assume responsibility for the reporting.

Please contact me if you have any questions or would like to discuss them further. Contact me at 720-948-3553 or email me at steve@life-legacylaw.com. You can also go to the website: www.life-legacylaw.com and schedule a free consultation.

Stephen Villanueva,

Advisor and Personal Family Lawyer