Note: The podcast references partnerships as potentially having to file a beneficial ownership report. The CTA’s reporting requirements extend to non-exempt businesses that are registered through a filing with the Secretary of State or similar office. Limited partnerships (LPs) and limited liability partnerships (LLPs) may be subject to CTA reporting requirements since they are created through a state filing.
Other podcasts in the series
Corporate Transparency Act resources
TRANSCRIPT
Greg Corombos: Hi, I'm Greg Corombos. Our guest in this edition is Gene Marks. He's a successful entrepreneur and a highly respected small business expert. He is also an author and columnist. Today we want to get his insights on the Corporate Transparency Act, or CTA, and specifically how LLCs ought to be approaching the compliance deadline for filing beneficial ownership information or BOI reports in compliance with the CTA. And Gene, always great to have you with us. Thanks for your time today.
Gene Marks: Thanks, Greg. It's good speaking with you. And by the way…people can't see me, but if they saw me, they would be able to tell immediately that I am a certified public accountant as well. There's no question about that, once you look at my face. And this Corporate Transparency Act has definitely been providing us with some work to do and some advising that we have to do with clients. So the topic is very, very relevant.
Greg Corombos: Well, excellent. I want to get into your personal experience with your clients and just kind of go through the basics about what it means to comply with the CTA and the beneficial ownership requirements in it. You've been writing about this for months, and there are a couple of points you seem to keep stressing about compliance. One is that there's confusion that keeps arising, and the other is to just buckle down and get this done before it gets too close to the deadline. So let's take those one at a time, and then clear up as much confusion as we can. What are people most confused about when it comes to CTA and BOI compliance?
Gene Marks: The first part of confusion is just a lack of awareness. You know, when I talk about the Corporate Transparency Act and beneficial ownership, a lot of my clients, a lot of people, when I speak at industry associations, they look at me blankly. Like, what's that, you know? People don't even know that it's out there. And that's a big issue, because if you don't comply with this rule, then you could be facing up to $10,000 in fines if you don't do this per entity. We'll get into that later. It's important that you know about it, so it's number one. And then number one, the confusion is, where do I go, and am I eligible? Why is the government even asking me for this information, you know, and should I get help to fill this thing in? There's a lot of unanswered questions. And you and I are recording this now in August. My expectation is, as we get into November and December, humans being the way that they are, a lot of people won't have done it yet, and there's going to be this flurry of activity before the end of the year. So I think it's important to get it done sooner rather than later.
Greg Corombos: Yeah, if procrastination was an Olympic sport, I think some of us would do pretty well at it. But Gene so let's just back up a little bit right there. What is the CTA and why does it exist?
Gene Marks: So it's called the Corporate Transparency Act. This is an act that was passed by Congress a couple of years ago, and it's just being implemented this year under the Treasury Department. And I want to stress as well that there are a lot of regulations that have been hitting businesses over the past couple of years — worker classifications, overtime rules, things like that — which are regulations being carried out by departments that may very well be changed depending on how elections turn out or in court cases contesting them. But the CTA is legislation. I mean, this was specifically laid out in legislation a couple of years ago. This is not a regulation. This is not something that an executive order can overturn. The only way they can be stopped is if it gets held up in the courts, which that's not the case right now. So the Corporate Transparency Act is basically being done under the Homeland Security administration, as well as the Treasury Department. The reason why it's there, Greg, is not because the government just wants to get into our private information and know the ownership of our companies for nefarious reasons. It's a security issue. The intent here is that the government wants to know, the Department of Homeland Security wants to know the beneficial owners of all corporations and partnerships in the U.S., just in case there is any type of owners of these entities that might be foreign, might be affiliated with terrorist groups, might have other illegal things in their minds. And that's the reason why they're asking for this information. So they're telling us right now, by the end of the year, you need to submit this information, unless you're deemed to be not eligible.
Greg Corombos: Well, that's an excellent overview of why this law exists and why compliance is being demanded by the Treasury Department. So specifically for LLCs. And I guess even before we get into that, do most business owners, I would assume they do…. But maybe it's not right to assume, do most business owners know their entity?
Gene Marks: Most business owners…do they know their entity? It's a pretty good [question]. I think so. I mean, I'm thinking of my clients, Greg, and if you were to ask, what kind of entity you have, if I asked my clients, I think most of them would be able to know that they own a partnership or a limited liability company or a professional corporation, or a Subchapter S or a C corporation. I think they would know. All of these entities, by the way, are applicable under this law. So, you know, it's regardless of what entity you own, even if you're an LLC or an LLP, it really doesn't matter what your entity is. Most entities are eligible unless you're not. And there are 23 specific types of businesses that are not eligible under this, that would not have to report. And we can go through what some of those if you're interested.
Greg Corombos: Yeah, those are the 23 exemptions. So go through, I guess, at least the most common ones. What are the types of exemptions that could mean that LLCs don't need to file a BOI report?
Gene Marks: First of all, I do want to say that there is a really good website. It's fincen.gov, “F”, “I”, “N”, “C”, “E”, “N”, dot gov, forward slash, “B”, “O”, “I”. If you go there, there's frequently asked questions, there's a bunch of information, and they list out the 23 companies or organizations or entities that would be exempt from this rule. And you'd be surprised by some of them. For example, most nonprofits would be exempt. Banks and credit unions are exempt. Money services businesses, venture capital fund advisors, insurance companies. Accounting firms. My firm is exempt from this as well. And those are just a few. I think one that we should all know as well is large operating companies are exempt. Meaning that if you have more than 20 full-time employees, you would be exempt from this law. Now you might think to yourself, like, Wow. I mean, there's 23 of them here. I've just named some pretty common ones that are out there. The thing is that there are 33 million businesses, 33 million. And 98 percent of them to 99 percent of them have less than 20 employees, and many of them are things like, I don't know like an entity because I'm buying a vacation home. So my advisor tells me to create a partnership for that. So you know, if I'm buying it jointly with somebody else. Or shell companies, which are fine, or holding companies. There are a lot of entities that are out there that don't have any employees at all, or that have less than 20 employees that aren't in any of these services businesses. They're just there for certain reasons. And those are the ones the Treasury and the Homeland Security Department is most concerned with. They're concerned with the shell companies. They're concerned with that S corporation that was opened up with one shareholder that has no assets, but don't know what it's all about. That's what they're concerned with. That's what the whole point is of this whole law. To figure out who all of these entities are in case there's anything that's potentially risky from a security standpoint.
Greg Corombos: They're trying to root out, basically, criminal activity under the guise of a legitimate business.
Gene Marks: Greg, listen, if you own any entity yourself and you're in partnership with anybody from, like, al Qaeda, I just want you to be advised, that's an issue. So you know, the minute you report that, be very aware. Tell your partner.
Greg Corombos: That is a red flag. And that should be a red flag. And so just briefly explain what type of information then, if you're in that 98% who doesn't qualify for an exemption, what information you need to provide to FinCEN, which is the Financial Crimes Enforcement Network at Treasury.
Gene Marks: So first of all, you have to provide information about the entity and about its beneficial owners. So [for] the entity itself, you're providing things like your tax ID, obviously the name and the address of the entity, as well. For beneficial owners, again, names and addresses and some type of identification, like a government identification number, passport number, driver's license number, social security number, you know, tax ID yourself. So, that's for all the beneficial owners. So it's information that the government can then identify you in whatever other databases and records they have to further investigate if they feel that there is a need. A beneficial owner is considered to be anybody that has more than 25% of equity in the business. But it goes beyond that. I mean, it's really somebody that really has significant influence in the business. So if you have a board of directors or board of advisors, it's quite possible they're not one of your beneficial owners. But I have a client, for example. They're a limited liability company. They've got three shareholders. It's actually three brothers. It's a family owned business. So they're going to have to report. But they also have an operations manager, director of operations, who is not a shareholder of the company. But he's really running this company. I mean, the three brothers are more silent on the operation. So this guy does have significant influence over the company. You know, we're reporting his information as well, even though he's not [an owner of the company]. So that the definition of a beneficial owner is, it's not just a shareholder of the company, it's somebody who has got significant influence over the company's operations, and that needs to be taken into consideration when you're filling out this form. And my advice to you is, err on the side of caution. If you're not sure, then report the person's information. And I know a lot of people are like, oh, you know, we're giving up this private information [for] this person, their social security number, or his or her tax ID, or his or her passport number. But, I don't know if you feel the same way, Greg, but it's 2024. And I kind of feel like the government has that [information] in 60 different places, you know. So I just don't know how much of an issue that is to people nowadays. So again, my advice is to err on the side of caution.
Greg Corombos: It's a fascinating example that you just offered there, the three brothers, and then the person who's calling the shots day to day at the company needing to be included as well. Any other interesting client situations that you've dealt with in compliance with the CTA and the beneficial ownership reports that you think others could benefit from?
Gene Marks: Yeah. I mean, board of advisors and board of directors has been an interesting one, because a lot of clients do have advisors. Some people ask about... I have one client who… They have an outside attorney. And this outside attorney is not a shareholder of the company, but he is deeply involved with the company. And in fact, he's a family member. But he's not an equity member. But anything that happens in the company, they kind of run it by him. And we said, listen, we need to include him as a beneficial owner, because he really does have significant influence on the decision that's being made. And in all honesty, in the guy's defense, he was like, yeah, that's fine. You can report my information. And I get it. So you really have to look at those kinds of people that your company's dealing with, and decide whether or not they have a significant influence over decisions that you're making in your business.
Greg Corombos: We’re talking with Gene Marks. He's a successful entrepreneur, a highly respected small business expert. He's an author and a columnist, and you see him interviewed on television in a number of different places for his business expertise. And so let's get back to the nuts and bolts here a little bit, Gene. First of all, what are the deadlines for filing your beneficial ownership reports, assuming you're not exempt?
Gene Marks: So assuming that you're not exempt, you do need to file by January 1, 2025. So that is the deadline. So, there is still time to do that.And also, be aware that it's a one-time filing, but you do need to keep it updated. So after January 1 of 2025, if ownership changes, if information about the owners change — addresses, for example — if you bring in a new owner or a new significant manager, or whatever, it's your responsibility to make sure that you're updating that information.
Greg Corombos: What happens if you file and you realize you made a mistake? How do you fix that?
Gene Marks: You can always go back and correct it. The penalties right now… There are penalties for willful misinformation, and for not filing at all. But you know, people make mistakes. You can always go back. Once you find that, when you go to you know the site… And again, I'll repeat it. It's fincen.gov, “F”, “I”, “N”, “C”, “E”, “N”, dot gov, forward slash, “B”, “O”, “I”. That's where you start to go through the application process. It doesn't take very long. I've done it a number of times. You can always go back and correct it. It's open. I mean, you set up a username for yourself to do it, and you can always fix it. So don't worry, if you make a mistake, you can fix it. You will not be penalized.
Greg Corombos: And just to reiterate what you said a moment ago, if nothing changes, there's nothing you need to do going forward until something does change, right?
Gene Marks: Yep, that is correct. But, I mean, don't forget about it. It's funny. I get clients, Greg, that, you know, they get requests like Census Department requests to report information. A lot of times, people are so busy that they wind up in the trash. And there are potential penalties for not doing those kinds of requests in the Census Bureau, but nothing compared to this. I mean, again, if you don't do this by the end of the year, you will be subject per entity [to] a penalty that can go up to as much as $10,000 per entity. So just to give you an example, I have clients that… A person might be an owner in five different partnerships. They might own property. Or, again, like I said, a vacation home, personally, or their own business. You have to file this information for each of those entities. And if you don't, you can face a fine of up to $10,000 per entity. So if a client of mine, who is a shareholder in five different entities, if they didn't file, the guy could be subject to up to $50,000 in fines. So it's pretty significant stuff. So I really want to make sure people are aware of that.
Greg Corombos: Yeah, the penalties can be very, very steep for noncompliance here, or willful wrong information. In terms of what you said a moment ago, it's a fairly simple process, but at the same time it needs to be done. And to avoid the end of the year rush, to borrow Nike's phrase, it sounds like you're saying you just need to do it.
Gene Marks: Yeah, you just need to do it, and you should get it out of the way now. You don't want to be running around at the end of the year doing that. I mean, I'm telling you, Greg, I am betting the last two weeks of the year, everybody's going to be freaking out. Because it'll be media news at that point, right? So everybody will be freaking out. And then, who knows if, like, the site for it can then accommodate this rush of people. You don't want to be in the middle of that. So you definitely want to do this sooner rather than later. The other thing I also want to bring up is that there was a lawsuit recently where a federal judge did find in favor of the plaintiff, saying that this Corporate Transparency Act is unconstitutional because [of] the information the government is asking. That's being appealed by Treasury, and Treasury is pursuing this. I just want to be clear that, in that suit and another one that the Treasury is contesting, they were brought about by individual groups of people. You know, for example, there was one suit in Alabama. It was a small business group that was based there, and again, the court found in their favor. So right now, the people that were members of that group, they don't have to comply until this thing works itself out in the courts. But it wasn't a class action, so the rest of us do have to apply. So if you were reading somewhere that, oh, there are court cases, and some found that this is unconstitutional, whatever. Okay, true, but that doesn't affect the rest of us. And so most people still need to comply with this law. The Treasury Department is appealing this. But besides that, it's like I said, it wasn't a class action. So the other thing is, there is some stirring among some business groups trying to get some senators and congressmen on board to enact legislation to repeal the law. So there is some movement of that in Congress. But, you know, Greg, it's Washington, right? So who knows where that's going to go, or if it's ever going to go. So, you know, we're telling our clients, you need to be doing this. This is for real, and you need to be making sure that you're complying.
Greg Corombos: Gene, a wealth of fantastic information here. Hopefully, it not only gives people peace of mind about how simple the process can be, but also lights a little bit of a fire to make sure they're not the ones scrambling at the end of the year. So thank you very much for your time and your expertise.
Gene Marks: Greg, thanks for having me on. Look forward to talking with you again.
Greg Corombos: Absolutely. Always a pleasure. Gene Marks is a successful entrepreneur and a highly respected small business expert. He's also an accomplished author columnist, and you see him on television, interviewed on small business matters frequently. I'm Greg Corombos reporting for Expert Insights. For more information on this subject, please visit bizfilings.com.
