Major reporting requirements
for LLCs and Corporations
starting January 1, 2024
Important Details about FinCEN's CTA Requirements:
Beginning on January 1, 2024, many companies in the United States, particularly small businesses, will be required to report information about their "beneficial owners" to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Beneficial owners are individuals who ultimately own or control the company. The following details are crucial for reporting:
- What to Report:
- Legal Name (and Trade name/DBA if applicable)
- Jurisdiction in which the entity was formed (State of Secretary of State)
- Taxpayer ID Number (FEIN, employer ID number)
- Information about Beneficial Owners (individuals who own or control 25% or more of the entity)
- Legal name, birthdate, address, License/passport #, image of license/passport from which the number came.
- Who is a Beneficial Owner (BO):
- LLC Members
- Partners in LPs
- Other individuals such as spouse, family members, friends, acquaintances, and off-books financiers could also be considered beneficial owners.
- When to File:
- Businesses created with a Secretary of State filing prior to January 1, 2024, have one year to complete the initial filing.
- New entities created with a Secretary of State in 2024 must file the initial report within 30 days.
- Changes and corrections for any entity's beneficial owners must be filed within 30 days of the change.
- Exemptions: Entities with more than $5,000,000 in revenue and more than 20 employees. This is specifically targeted at small entities.
We would like to be able to assist you with this filing however the determination as to whether someone should be considered a beneficial owner has been determined to be the practice of law (at least for now). We are working on a solution that will allow us to assist our clients that does not cross the line into the unlicensed practice of law. Therefore, as of now, Financial Clarity Group will be referring CTA compliance to a third party. As soon as we have a link this post will be updated. You are able to file the reports and updates on your own or your attorney may be able to assist.
Consider writing your US congressional representatives. See my letter to the Ohio representatives below.
November 17, 2023
Senator Sherrod Brown
550 Main St.
Cincinnati, Ohio 45202
Dear Senator Brown,
In 2021 a bipartisan vote of both houses of Congress passed the Corporate Transparency Act (CTA) as an attempt to identify the owners of entities that could potentially be involved in money laundering and other illegal activities. FinCen or the Financial Crimes Enforcement Network was assigned by Congress to implement and enforce the Act. The reporting requirements of CTA go into effect in less than six weeks and FinCen has yet to issue reporting forms, clear guidance on hundreds of questions, forms necessary to protect the identities of owners (Unique Identifier), assure users that the projected tens of millions of new submissions will not crash the website or frankly even consider the real-world aspects of CTA to millions of small business owners.
The CTA applies to businesses with 20 employees or less or less than $5,000,000 in revenue. That criteria means nearly all of my business clients must comply with yet another government regulation that adds nothing to their business.
According to the SBA small businesses provide nearly two thirds of all new jobs in the United States, employ nearly 50% of all non-governmental employees, and 40% of non-governmental payroll in America. Yet, this very group has their very existence threatened by a new law with no provision for extended filing dates, a $500 daily non-filing penalty, a potential two-year felony prison term for non-filing and a total lack of awareness of the requirement to file this new form because FinCEN has done noting to notify them. Attorneys and my CPA colleagues are doing everything we can to prepare our clients based on what we know.
With nearly twenty-five years of experience working exclusively with small businesses, here are just a few of the potential problems neither FinCen nor Congress addressed in CTA:
• The single mom that set up her own LLC on a state website, does her own tax return and has no attorney because she is trying to pay for rent and food for her kids. She is not aware of CTA, cannot afford to hire an expert, wants to build a business, but unbeknownst to her is accruing a $500 daily non-filing penalty and potential prison time for not filing a form she never heard of and cannot figure out how to file since it must be filed electronically directly to FinCen. Multiply this example by ten million similar small businesses.
• The small business owner that somehow figures out, with their attorney or accountant, how to E-file the not yet released form, attaches a picture ID driver’s license as required and then 30 days later gets a new driver’s license to replace the old one. According to the image provided in FinCen’s own small business compliance guide they need to file a new report within 30 days for “any information that has changed”. Of course, they don’t think of this on a new driver’s license, don’t file the form and face a $500 daily fine and two years in prison. Multiply these times one hundred million business owners that are being forced to file multiple forms for multiple small businesses they own.
• The individual that owns 15 rental properties, each legally titled in a separate single member LLC. They are forced to file 15 separate forms, and heaven forbid that they move and must file 15 more change forms within 30 days (as mandated) or face the same penalties and prison time. ® 4403 Hamburg Pike, Suite A Jeffersonville, In 47130 877-466-1040 www.taxspeaker.com Jennings Advisory Group, LLC
• The small business that is owned exclusively by one person, but which allows two of the more experienced employees out of six total employees to sign receipts and contracts. These employees may be considered Beneficial Owners so the business owner must request filing information from these employees and include them in the CTA form or face fines and prison time. In a time where labor is impossible to get and keep, these employees will likely quit and destroy that small business.
• The small business that is just above the exemption threshold of 20 full time employees that has one employee quit. The CTA exempts businesses with 20 employees from filing, but blatantly and directly threatens the very small business that does not apparently count employees every day or minute and must now file a form. FinCen has provided no guidance on when to file this form, but the business owner still faces a $500 daily penalty and Federal prison time. A similar situation exists if the business’s revenues dip just below the $5,000,000 reporting exemption. Do they file the day a customer leaves or the end of the month or the next year? Do they need to file the day that average sales drop below a necessary threshold? Who knows-we are six weeks from this law becoming effective and there is no FinCen guidance, yet the small business owner again faces daily fines and prison time.
Further, it is unclear whether members of my profession (CPAs) can assist our clients without crossing the line into the unlicensed practice of law. My E&O insurance carrier will not provide coverage for anything to do with CTA because they believe it is the practice of law. Millions more business owners have relationships with a CPA or tax preparer than attorneys.
In over two decades of small business advising, I have not encountered a business law that was so anti-small business so poorly envisioned by Congress, so poorly implemented by government agencies, and so directly devastating to the very existence of small business and indirectly to the United States economy. In summary: CTA must be delayed and then revoked. Small businesses cannot afford this. There must be a better way to combat the sort of criminals CTA was intended to ensnare.
Michael McCormick, CPA
Financial Clarity Group, Inc.
513-488-1121 x 206
cc: Representative Brad Wenstrup and Senator JD Vance