21 Nov

The Corporate Transparency Act: Government’s Orwellian Way of Saying “If You Want to Keep a Secret, You Must Also Hide it From Yourself”*

By Kevin J. Palmersheim

November 21, 2023

*Quotes are from George Orwell’s books, which are WAY more fun to read than this blog. 

The Corporate Transparency Act goes into effect January 1, 2024, requiring unheard of disclosures of information about owners, managers, and organizers of businesses in the United States (and foreign businesses operating in the U.S.) If you don’t already feel that the government is getting more and more like George Orwell’s ‘Big Brother’, then be prepared to party like it’s 1984.

“War is peace. Freedom is slavery. Ignorance is strength.”

Key Points of the Corporate Transparency Act

The Financial Crimes Enforcement Network (FinCEN) pushed passage of the Corporate Transparency Act (CTA) to require most companies to report personal information about each person involved in the company’s formation, ownership and management to FinCEN. FinCEN will use the “Beneficial Ownership Information” collected to develop and maintain a national beneficial ownership registry in order to detect, prevent and combat terrorism, money laundering, and other illicit activity using business entities. While the stated goal is admirable, the concern is that we have swept up millions of law-abiding business owners into a bureaucratic quagmire – one managed by the same overseers that make us travel through airport security packing 3-ounce bottles into quart-size ziplock bags while holding up our beltless pants so they don’t fall down to our shoeless feet.

“Sanity is not statistical.”

What is Beneficial Ownership Information

BOI refers to identifying information about individuals who directly or indirectly own or control a Reporting Company.

“Perhaps one did not want to be loved so much as to be understood.”

Who is a Beneficial Owner of a Reporting Company?

A Beneficial Owner is a person who directly or indirectly:

• Owns or controls at least 25% of the Reporting Company’s ownership interests.
• Exercises substantial control over the Reporting Company, INCLUDING any of the following:
• Is a senior officer (e.g., president, CEO, general counsel, CFO, COO, or any other officer performing a similar function).
• Has authority to appoint or remove certain officers or a majority of directors of the Reporting Company.
• Is an important decision maker concerning the Reporting Company’s business, finances, or structure. It is unclear at this point how it will be determined which level of manager, possessed with what responsibilities and authority, will be considered an important decision maker for reporting purposes.

“If there really is such a thing as turning in one’s grave, Shakespeare must get a lot of exercise.”

Who is a Company Applicant of a Reporting Company?

A Company Applicant is either or both of the following:

• The individual who actually files the document that creates or registers the corporation, LLC, or other entity, and
• If more than one person is involved in the filing, the person who is primarily responsible for directing or controlling the filing.

“Perhaps a lunatic was simply a minority of one.”

IMPORTANT TIMING CONSIDERATION Companies created before January 1, 2024, will have until the end of 2024 to file their reporting information and will have some information excluded from the filing requirements (concerning Company Applicants – individuals who formed the company initially, but are no longer owners or managers). THEREFORE, if you think you may need a new LLC or corporation some time before the end of 2024, you should consider filing for registration before the end of 2023. Waiting until January 2024 to file will shorten the BOI filing deadline from one year to 30 days. Plus, entities created on or after January 1, 2024, will also have to file information about their Company Applicants (see below). An entity created in 2023 could adopt a delayed effective date into 2024 by selecting that option on the Articles of Incorporation/Organization.

“It was a bright cold day in April, and the clocks were striking thirteen.”

 
Information Reporting Companies Need to Disclose About Themselves

Reporting Companies will need to disclose the following information about themselves:

• Legal name
• Trade names (d/b/a)
• Street address of its principal place of business if in the U.S. or address from which company conducts business in the U.S.
• Jurisdiction of the entity’s formation
• Taxpayer identification number

All of the above information is already reported to the federal government when an entity applies for and is assigned an EIN, as well as on annual state and federal tax returns and other documents.

“The best books… are those that tell you what you know already.”

Information Reporting Companies Need to Disclose About Their Beneficial Owners and Company Applicants

Reporting Companies will have to report the following information for each Beneficial Owner:

• Individual’s name;
• Date of birth;
• Residential address; and
• Identifying number from an acceptable document such as a passport or a U.S. driver’s license or identification document. (Reporting Companies will need to upload an image of the identification document used.)

“Windmill or no windmill, life would go on as it had always gone on – that is, badly.”

Who Can Access Beneficial Ownership Information?

The CTA permits federal, state, local, and tribal officials to obtain BOI for “authorized activities related to national security, intelligence, and law enforcement.” Foreign officials who request access through a U.S. federal government agency may also obtain access to BOI. Financial institutions will also have access to BOI under certain circumstances and with the reporting company’s consent. FinCEN is developing rules that will govern access to and handling of BOI. It is entirely uncertain at this point precisely how, and with whom, your information will be disclosed.

“The Ministry of Peace concerns itself with war, the Ministry of Truth with lies, the Ministry of Love with torture and the Ministry of Plenty with starvation.”

Filing Deadlines Under the CTA

• Entities created or registered before January 1, 2024, will have until December 31, 2024, to file their initial BOI reports.
• Entities created on or after January 1, 2024, will have 30 days to file their initial BOI reports. The 30-day deadline runs from the date the Wisconsin Department of Financial Institutions (DFI) provides public notice of the entity’s creation or when the entity receives actual notice that its creation or registration is effective, whichever is earlier. Once you file your initial report online you only have to file updates when there has been a change in your information (your address, or a new beneficial owner or manager, etc.) You have 30 days after the change to file the updated information. Again, the online filing requirements start January 1^st and as of 6 weeks before then there was still no way to comply with this mandatory reporting law.

“Doublethink means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.”

Which Entities are Exempt?

The CTA has exemptions that shield certain entities from its reporting requirements. The exemptions cover businesses that are already heavily regulated or otherwise subject to significant reporting requirements. (And, if I were to be cynical, certain entities that have more lobbyists and have donated more money to legislators.)

“All animals are equal, but some animals are more equal than others.”

Here are the most likely appliable exemptions:

• Charitable organizations;
• Certain companies in heavily regulated industries such as banks, insurance companies, accounting firms, and SEC registered entities;
• Companies with a physical presence in the U.S. with at least 20 employees and gross receipts in excess of $5 million; and
• Certain entities that essentially have no income, expenses, assets, or business activity.

“But if thought corrupts language, language can also corrupt thought.”

Penalties if a Person Fails to Comply with the CTA’s Reporting Requirements?

If an inaccuracy is corrected within 90 days of the original filing deadline, no penalty will be imposed. However, if a person willfully fails to complete or update BOI information or files false or fraudulent BOI, civil penalties of up to $500 per day and criminal penalties including imprisonment for up to 2 years and/or a $10,000 fine may apply. Senior officers of an entity that fails to file a BOI report may be held accountable. In addition, a person could be subject to civil and/or criminal penalties if they cause a Reporting Company not to file or to file false information.

“If you want a picture of the future, imagine a boot stamping on a human face—forever.”

How Will FinCEN Protect Beneficial Ownership Information it Receives?

According to FinCEN, “Beneficial ownership information reported to FinCEN will be stored in a secure, non-public database using rigorous information security methods and controls typically used in the federal government to protect non-classified yet sensitive information systems at the highest security level. FinCEN will work closely with those authorized to access beneficial ownership information to ensure that they understand their roles and responsibilities to ensure that the reported information is used only for authorized purposes and handled in a way that protects its security and confidentiality.” I feel safer already.

“Reality exists in the human mind, and nowhere else.”

Beneficial Owner Information Reports will be Filed Electronically

BOI information will be reported to FinCEN electronically via a secure filing system accessible through FinCEN’s website. The system is still being developed – in fact, we waited most of 2023 for this ‘development,’ which is concerning because mandatory reporting starts on January 1, 2024. No filing fee will be required.

“I sometimes think that the price of liberty is not so much eternal vigilance as eternal dirt.”

Assignment of a FinCEN identifier

A FinCEN identifier is a unique number that FinCEN will assign to an individual or Reporting Company after the individual or Reporting Company provides information to FinCEN. Individuals will receive identifiers electronically immediately after completing the application. The FinCEN identifier may subsequently be used in BOI reports instead of the required personal information (including re-uploading copies of your driver’s license or passport). So far, that means that your BOI will include reporting numbers for your company EIN, your driver’s license or passport number, your date of birth, the FinCEN identifier for you and your company, and possibly your social security number.

“Four legs good, two legs bad.”

FinCEN Taking Its Sweet Time Developing the BOI Filing System, and Other Information

Once the form for filing BOI is available it will be posted on FinCEN’s beneficial ownership information webpage [https://www.fincen.gov/boi]. There is also additional information on that website that I have translated/summarized for you in this blog.

“If liberty means anything at all it means the right to tell people what they do not want to hear.”