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The Benedict Brief: May 2024

More Gov’t Rules and Regulations?  Unfortunately, yes…

Now that tax season is over (except for those who file extensions), you probably think you are done with your annual required Government filing for the year.

Well, not exactly.  If you or someone you know is a small business owner or someone that has an active LLC, there is a new law that may apply to you…and the initial required filing is due in 2024.

Wait!  What new law and what required filing?

The Corporate Transparency Act (CTA) became effective 1-1-2024 and requires most small businesses to complete a new filing this year, due before 12-31-2024.

The CTA was initially included in the National Defense Authorization Act that was passed back in 2021.  Now, after 3 years, the law has formally taken effect.

The new law is designed to increase transparency into who owns, controls and benefits from closely held business entities.  The primary goal is to crack down on criminals and terrorists who use these corporate structures to launder money, evade taxes and fund illicit activities.

Sounds wholesome, right?  Let’s take a closer look.

There are dozens of U.S. anti-money laundering laws and regulations on the books already.  Do we really need another one?  What about replacing those existing laws with the new CTA? Not a chance.  Just add it to the mountain of rules and regulations already in place.

The CTA specifically targets small business entities requiring detailed information on their owners, shareholders, or control persons.  This is all in the name of stopping criminals from using these entities to commit their crimes.  Obviously, sometimes criminals can and do use these business entities to commit crimes.  But is this really where the Government’s focus should be?  On Joe’s Landscape business?  Or Jane’s Tax Preparation business?  Haven’t we overburdened the small business owner already with too many rules and regulations?

Criminals and terrorists use all sorts of companies and devices to facilitate their crimes…social media, iPhones, laptops, traditional bank accounts, crypto currency wallets, etc.  But the Government has decided to single out small business owners and entities with the additional scrutiny of the CTA.

You may be thinking that most small business entities already provide much of this information to the IRS each year in their annual tax filings.  Yes, that is true, but the CTA is not administered by the IRS, but by The Financial Crimes Enforcement Network (FinCEN), a bureau under the Department of Treasury.  Seriously.

So now owning and operating a small business in this country feels like a financial crime that must be reported!

In addition, failure to comply carries steep monetary and criminal penalties.  Believe it or not…civil penalties can be up to $591 per day (as of 2024) and criminal penalties up to $10,000 and 2 years in prison!

Look, I’m all for stopping criminals and terrorists committing their crimes.  I’m just questioning if it has to be at the expense of burdening millions of law-abiding small business owners out there trying to make a living for themselves and their families.

I found a statistic that approximately 32.6 million small businesses will need to comply with the CTA this year.

Do all these businesses and owners know about the Corporate Transparency Act reporting requirements?  I doubt it.

I don’t recall the Government making a big official announcement and spreading the word about this new law and the filing requirements due this year. (we are aware of the new law because of the numerous financial and tax related research services that we subscribe to…not common for someone outside of our industry)

How many innocent small business owners will be penalized for noncompliance?  As the old saying goes, “ignorance of the law is not an excuse”.

Rather than implementing additional rules and regulations that make it harder to own and operate a small business, maybe our government could focus on ways to significantly grow our economy (maybe start with just getting out of the way!).

Small businesses are a critical growth engine in the US economy.  We should be encouraging and prioritizing new business growth, not hampering it with more laws.  We need an economic resurgence, as it is the best solution to some of the major economic problems we have.

Alright, enough of my venting, here is more information on the Corporate Transparency Act (CTA) that you need to know:

Who must file?  Entities (aka Reporting Companies) formed with the Secertary of State (LLC, S-Corp, C-Corp, etc.)

Beneficial Owners:  Reporting Companies must report details on Beneficial Owners; those individuals who own/control 25% of the ownership interests or those individuals that exercise substantial control over the reporting company.

Company Applicants:  Those individuals who file an application to form or register an entity with the State are also subject to the reporting requirements. This applicant information only applies to reporting companies created or registered on or after 1-1-2024.

Reporting Requirements:  Information that must be reported for the Reporting Company:

Legal Name
Doing Business As (DBA) Name
Principal Address
State or Foreign Jurisdiction of Company Formation
IRS Tax ID Number (TIN) or Employer Identification Number (EIN)
Information that must be reported on each beneficial owner:
Full Legal Name
Date of Birth
Home Address
ID Number and Issuing Jurisdiction (Driver’s License or Passport)
Copy of ID Document (Driver’s License or Passport)

When must reports be filed?  Existing businesses must file by 1-1-2025.  New businesses established in 2024 must file within 90 days of forming the entity. New businesses established after 1-1-2025 must file within 30 days of forming the entity.  If there are ANY changes to the required information in a previously filed report, those changes must be reported within 30 days of the change.

Exemptions?  Of course there are! I mentioned the focus is on smaller business entities, so larger businesses with 20+ full-time employees or more than $5 million in revenues are exempt.  Also, public companies, banks/financial institutions, government related entities and curiously, charitable organizations are also exempt.

The above information is just a brief overview of the new law and the reporting requirements.  We are certainly not experts in the details of this new law, we just wanted to alert our clients and friends of this new requirement due in 2024.

For additional information and details, see the links below:

FinCEN Beneficial Ownership Information (BOI) E-Filing System: BOI E-FILING (fincen.gov)

FinCEN Small Entity Compliance Guide: BOI Small Compliance Guide v1.1 (fincen.gov)

FinCEN Beneficial Ownership Information (BOI) FAQ’s: Beneficial Ownership Information | FinCEN.gov

Please let us know of any questions and we’ll try to help as much as we can.  Thanks for reading.

 

Benedict Financial Advisors, Inc.

Travis M James, CFP®
Mark A Beaver, CFP®
Jim Senkbeil, CIMA®
Ashley A Thompson, CFP®
Robert J. Hamill, CFP®, ChFC®, APMA®
Jackie Thompson
Fredda B Schwartz

Benedict Financial Advisors, Inc., a registered investment advisor, publishes The Benedict Brief. All opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments may be appropriate for you, please consult your financial advisor. Remember that international investing involves additional risk, such as currency fluctuation and political instability. Also, any time an index is mentioned, please remember that it is an unmanaged index that cannot be invested into directly. And, of course, past performance, in the investment world, is no guarantee of future results. Stock investing involves risk including loss of principle. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. No strategy assures success or protects against loss. The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

The primary author of this issue of The Benedict Brief is Mark A Beaver, CFP®. Travis M James, CFP®, Jim Senkbeil, CIMA®, Ashley A Thompson, CFP®, Robert J Hamill, CFP®, ChFC®, APMA® provide technical assistance. Fredda B Schwartz and Jackie Thompson handle the layout and editing of the newsletter.

Investment advice offered through Benedict Financial Advisors, Inc., a registered investment advisor.