This podcast is one in a series focusing on the Corporate Transparency Act and beneficial ownership reporting requirements.
Others in the series include:
TRANSCRIPT
Greg Corombos: Hi. I'm Greg Corombos. Our guest in this edition is David Spencer, Director of Compliance and Government Operations with CT Corporation. This podcast is one in a series focusing on the Corporate Transparency Act, and there's a trend among state governments to implement their own requirements for beneficial ownership reporting. On March 1 of this year, New York Governor Kathy Hochul signed a revised version of a law that requires limited liability companies to report information on beneficial owners, which in many ways follows the federal Corporate Transparency Act. The New York law will go into effect on January 1, 2026. David is here today to discuss the New York law, as well as proposals for similar laws in other states. He will also touch upon recent updates from FinCEN, that's the Financial Crimes Enforcement Network at the Treasury Department, on how to handle dissolved entities for compliance with the Corporate Transparency Act, and information on the use of tax identification numbers. And David, thanks so much for your time today. We appreciate it.
David Spencer: Thank you, Greg. Glad to be here.
Greg Corombos: What are some of the key things that business owners need to know about New York's new law on beneficial ownership reporting?
David Spencer: Well, as you mentioned, Greg, New York's reporting law, which is known as the LLC Transparency Act, was broadly modeled after the federal Corporate Transparency Act. However, the New York law, as indicated by the naming of the law, is limited to limited liability companies that are formed in the State of New York or out-of-state LLCs that have qualified to do business in New York. These LLCs would be required to file a disclosure with the New York Department of State containing information on each of the company's beneficial owners, as well as each company applicant. And the terms “beneficial owner” and “company applicant” are defined the same way as they are under the Corporate Transparency Act. The information being provided includes full legal name, date of birth, current home or business address, and a unique identifying number from an unexpired passport, driver's license, or state or local identification document. Finally, information related to beneficial owners will be deemed confidential, except pursuant to the consent of the beneficial owner or by court order, or to officers or employees of federal, state, or local government agencies where necessary for the agency to perform its official duties, or for a valid law enforcement purpose.
Greg Corombos: So what does the reporting process look like for New York?
David Spencer: There are different deadlines based on when a New York LLC is formed or registered. After January 1, 2026, newly formed LLCs in New York and foreign LLCs newly authorized to do business in New York must electronically file beneficial ownership disclosures within 30 days of an initial filing of articles of organization or application for authority. Previously formed or authorized LLCs — meaning LLCs that were formed or qualified to do business in the State of New York prior to January 1, 2026 — will have until January 1, 2027, to comply. The New York law also has an annual filing requirement. Once the initial beneficial ownership disclosure has been filed, reporting companies must file an Annual Statement to confirm or update the beneficial ownership disclosure information, street address of the principal executive office, status as an exempt entity, if applicable, and any other information designated in the New York Department of State. This is different from the ongoing requirements for the federal Corporate Transparency Act, which requires you to submit another filing when there are updates or corrections to company and beneficial owner information, or where an entity becomes newly exempt from reporting.
Greg Corombos: Yeah, that's a big difference, right there. New York makes you do it once a year, and the federal Corporate Transparency Act makes you do it when there's a change. So how does an LLC qualify for an exemption from New York's beneficial ownership reporting requirements?
David Spencer: Greg, LLCs that meet the conditions of an exempt company under the Corporate Transparency Act can qualify for an exemption under New York's LLC Transparency Act. The Corporate Transparency Act has 23 exemptions that include companies such as banks, large operating companies, and tax-exempt entities. However, New York's law also requires a company to file an attestation of exemption under penalty of perjury with the New York Department of State. This is another difference with federal beneficial ownership reporting requirements, where nothing is needed to be filed initially if an entity qualifies for an exemption. The timing for these filings follows that of reporting companies. Qualifying companies that are formed or registered on or after January 1, 2026, will have to file an attestation of exemption within 30 days. Previously formed or registered companies have until January 1, 2027, to file the attestation of exemption. And LLCs that file an attestation of exemption are also subject to annual reporting requirements.
Greg Corombos: What if you don't comply? What are the penalties for noncompliance, specifically with New York's reporting requirement?
David Spencer: The New York law has various penalties for noncompliance, including monetary penalties for failing to file by the due date and possible suspension, dissolution, or cancellation of an LLC.
Greg Corombos: Well, we've talked a lot about New York here in the last few minutes. Which other states have beneficial ownership reporting laws?
David Spencer: The District of Columbia has the beneficial ownership reporting requirement. This has been in place since 2020. DC’s filing requirements extend to all entities formed or registered to do business in DC, not just LLCs. Also, the collection of beneficial ownership information is built into DC’s initial formation or registration process and into their biennial reporting process. And so far, California, Massachusetts, and Maryland have also proposed their own beneficial owner reporting bills, but those have not yet been enacted.
Greg Corombos: All right, David, let's switch now back to the federal level, regarding the federal Corporate Transparency Act, FinCEN recently updated its frequently asked questions page, specifically on how to handle compliance for dissolved entities. So give us some of the highlights from what we learned from those frequently asked questions.
David Spencer: The Financial Crimes Enforcement Network, or FinCEN, provided clarifications in July on whether dissolved companies need to file an initial beneficial ownership information report. Essentially, companies that cease to exist as a legal entity before January 1, 2024, do not have to file a BOI report. This means that the company has successfully completed the process of formally and irrevocably dissolving. Although state laws can vary, a company typically completes this process by, for example, filing dissolution paperwork, receiving written confirmation of dissolution, paying related taxes or fees, ceasing to conduct any business, and winding up its affairs. But if a company existed at any point on or after January 1, 2024, then it would be required to file an initial beneficial ownership information report if it met the criteria for a reporting company and did not qualify for an exemption. This is the case even if that entity has taken steps toward dissolution or even completed their dissolution process.
Greg Corombos: Now FinCEN also recently released frequently asked questions on the use of employer identification numbers or EINs for disregarded entities. That is, entities that do not need their own tax ID number for purposes of tax reporting to the IRS. Help us explain this a little bit more. What can you tell us?
David Spencer: Sure. This is relevant, because the Corporate Transparency Act FinCEN final rule requires a reporting company to report its tax ID number. If an entity does not have its own tax ID number for tax purposes, it raises a question of whether the entity would be required to obtain a tax ID number for beneficial ownership reporting purposes. The new guidance issued by FinCEN in July indicates that if the disregarded entity has its own EIN it may report that as its tax ID number. If the disregarded entity is a single-member LLC or otherwise has only one owner that is an individual, the entity may report that individual's social security number or Individual Taxpayer Identification Number as its tax ID number. Finally, the FAQs go further to address situations where a disregarded entity is owned by another entity or other disregarded entities. If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity's EIN. If it's owned by a chain of disregarded entities, it may report the tax ID number of the first owner up the chain that has its own tax ID number.
Greg Corombos: I think it would be helpful to remind our listeners, particularly those who are just kind of learning about what's required for compliance here of the due dates for the Corporate Transparency Act. So what are those and why shouldn't entities wait very long before preparing and filing?
David Spencer: FinCEN began accepting beneficial ownership information reports on January 1, 2024. Companies created or registered before January 1, 2024, must file by January 1, 2025. Newly created or registered companies in 2024 have 90 calendar days to file after receiving notice that their company's creation or registration is effective. The reporting is not an annual requirement, but must be updated or corrected if necessary. Regarding when to file, a company shouldn't wait until the last minute to file its beneficial ownership information report for several reasons. For one, to avoid penalties. The FinCEN final reporting rule has strict compliance deadlines, and failing to meet them can lead to significant financial consequences for a business. Also to avoid errors. Filing at the last minute increases the risk of errors. Hastily prepared documents may contain inaccuracies or incomplete information, which can lead to rejection or the need to file corrections. Compliance with regulations is very important. The Corporate Transparency Act requires detailed information about the company's beneficial owners. Gathering and verifying this information can be time consuming, depending upon ownership structure and whether information is readily available. Early preparation ensures all regulatory requirements are met, reducing the risk of non compliance. Reducing stress is also a consideration. Last minute filing can cause unnecessary stress for business owners and those involved in working on a beneficial ownership report. Early preparation allows for a more organized and less stressful compliance process. Finally, uncertainty created by litigation can create confusion. Despite ongoing litigation challenging the Corporate Transparency Act, FinCEN reporting obligations are currently in force. Relying on judicial or even legislative intervention is risky, and companies should comply with the current requirements.
Greg Corombos: David, a lot of good information, whether you live in New York or whether your business simply has to comply with the federal Corporate Transparency Act. And it might seem like we've got a lot of time left here in 2024 but the time is ticking away quickly. So great information, and a good idea to remind folks to get on this as soon as possible. Thank you so much for your time today.
David Spencer: Thank you. Greg.
Greg Corombos: David Spencer, Director of Compliance and Government Operations with CT Corporation. I'm Greg Corombos reporting for Expert Insights. For more information on this topic, please visit bizfilings.com
