Stated purpose: to strip US shell companies of anonymity that can hide financial activity.
Procedure: Registering Limited liability companies, corporations, partnerships, and other closely held entities with a government database.
Process: Not yet defined, as the forms have not been finalized.
Generally, the idea is good. Until CTA is in effect, someone can form a limited liability company which can have a listed manager but not disclose the owners or potential owners, and as such, the government can determine that $X was sent to an LLC1, but the trail stops there. CTA will require that LLC1 file a report showing that the owner/beneficiary of LLC1 is Person1 or LLC2. Person1 will be identified by full name, actual address (no PO boxes, etc.) AND will also attach a copy of photo ID (driver’s license or passport). LLC2 will also be subject to CTA, so its owner/beneficiaries will be disclosed. Theoretically, and if the database is designed well, a wire transfer to an LLC can be traced to its eventual beneficiary in seconds. If you want a real-world example of how this can be used/abused, contact me for an example.
Danger area: Unlike most legislation, CTA aims at SMALL organizations. Entities that have at least $5 million in revenue AND 20 employees are exempt. Microsoft Corp will be exempt from reporting, but Bob’s Sandwich shop will have to comply. Civil penalties can be up to $500 per day; criminal penalties can be fines up to $10,000 and imprisonment of up to 2 years. If you fail to file, this basically gives the government the ability to find you guilty of something if they so choose. So – when in doubt, file, and if you would like a real-world example of how this can be used/abused, contact me.
Scope: FINCEN estimates 32 million existing entities face filing obligations, and more will be added when they are formed. Entities created after December 31, 2023 have a filing deadline of 90 days from formation; existing entities as of December 31, 2023 have until January 1, 2025 to file.
Responsibility for filing: At present, we know the reports must be filed but establishing the responsibility is unclear. Filing services such as LegalZoom may offer this service (at least at startup), CPAs can provide assistance, but the filing deadlines are much more stringent than an annual filing. Changes to your name (thru marriage or divorce) or address must be reported within 30 days, and indications are that the entire form must be refiled, not just the changed information. It appears that renewing your driver’s license or passport will also require filing.
Compliance rules: At present there is a 50-page “Small Entity Compliance Guide” along with 33 pages of FAQs available at https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_guide.v1.14-FINAL.pdf
What do I do now? Just be aware. As soon as additional information is available, I’ll provide an update.