Something big is coming, and soon
June 1, 2023 | View PDF
I really dislike all of the sensationalism out there. Everywhere you look, it’s teaser, click-bait, outrage-inducing headlines and hotlinks, exaggerating or even outright lying to get you to look. If something online says “NBA World Reacts to Horrifying News About LeBron James”, the actual story will be that three people on Twitter noted that his free-throw percentage is down slightly.
The result of this constant bombardment is that most of us develop a kind of defensive shell against this manipulation. Back in the day we used to call this having a good BS detector.
On the other hand, I do need to tell you that YOU’RE PROBABLY GOING TO PRISON NEXT YEAR!
Okay, maybe that is a slight exaggeration. But not nearly as much as you think.
This is about the Corporate Transparency Act.
Now it may be that at this point, you have just let out a sigh of relief, and said to yourself “that sounds good to me. These big corporations need to be more transparent.” But like so much of what the Congress passes, the name of the bill does not actually reflect what the bill does.
In fact, this Act slipped through a couple of years ago because it was done as part of a routine defense reauthorization bill. Those things get passed regularly, usually without much if any opposition, because nobody wants soldiers and sailors to miss a paycheck. But sometimes they insert things in these non-controversial bills that only come up later. This one has been flying under the radar screen for a while, and it is only coming to people’s attention now because it has a big deadline which hits at the beginning of next year.
The Corporate Transparency Act requires every small corporation or LLC (limited liability company), as well as certain partnerships and other entities, to file a report showing their ownership. This is not going to be a quick and easy thing; if you have ever had to file a FinCEN report, this is going to be like that. The entity itself has to file a report showing the business name, tax ID number, current address, and the state in which the entity was formed. But then each “beneficial owner” also has to report, showing their name, address and date of birth, and also providing a copy of a government-issued photo ID.
And should you think that you will just flip Uncle Sam the bird on this one and ignore it, please be aware that the penalties for noncompliance include fines of up to $10,000, and up to two years in federal prison.
I repeat: up to two years in federal prison. What I said in all caps at the beginning of this article was only a slight exaggeration.
Maybe you’re still not worried. You are thinking, “Yeah, but they always have these de minimus exceptions for really small businesses like mine. I just have an LLC for my rental house, and I’m the only owner. This won’t apply to me.”
Guess what? There is no de minimus exception on this one. In fact, larger businesses don’t have to report. If you have 20 or more employees, at least $5 million in annual revenues, and meet a few other requirements, you’re exempt. This only hits the little guys.
Incidentally most trusts, and businesses which are sole proprietorships, probably won’t have to file these reports. I say “probably” because they are still sorting out the details of how all this will work. But again, the deadline is at the beginning of this next year, so you may want to be ready.
Aside from the annoyance this will cause, and the potential for ruining a lot of small businesses which might not hear about this and miss the deadline, there are serious privacy concerns. The government is insisting that this information will be kept very confidential, and used just for law enforcement purposes. But there have been plenty of instances of employees of government agencies leaking supposedly confidential information. Remember Joe the Plumber?
Oh, and here’s the kicker: when you file these reports, you will be doing it through a new database which, I kid you not, they have named the Beneficial Ownership Secure System. Notice the acronym?
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account. Meet the new boss, same as the old boss.