We are jumping in mid-month to discuss a very important topic for business owners, it’s the Corporate Transparency Act. Failure to comply could result in federal fines of $500 per day.
The Corporate Transparency Act (CTA) mandates that non-exempt businesses file a Beneficial Ownership Information (BOI) report by December 31 to complete a new federal requirement unless you are exempt. You need to find out if you are exempt or file the BOI. This report identifies information about the individuals who directly or indirectly own or control a company.
Martin Medeiros, a Shareholder at Buckley Law with more than 20 years of experience, explains everything you need to know if you are one of the businesses needing to comply with the CTA.
Important Links and Terms to Know
FinCEN: https://www.fincen.gov/boi
More about CTA: https://www.buckley-law.com/articles/cta/
Beneficial Ownership Information (BOI)
Financial Crimes Enforcement Network (FinCEN) - Beneficial Ownership Information Reporting | FinCEN.gov
Corporate Transparency Act — What You Need to Know | CO- by US Chamber of Commerce
Martin Medeiros’s practice area encompasses a range of services to clients including business formations and transactions, intellectual property, technology applications and IT, business succession management, privacy and security, and copyright and trademark law.
Buckley Law is instrumental in scheduling the Kruse Way Economic Forum, presented two times each year in the fall and spring. The next one is Wednesday, October 23. Doors open at 7:30 am, the program begins at 8 am, concluding at 9:30 am. Please make your reservations through 2024 Fall Kruse Way Economic Forum Tickets, Wed, Oct 23, 2024 at 7:30 AM | Eventbrite
Location: Kruse Way Conference Center, 5300 SW Meadows Road, Lake Oswego – plenty of free and easy parking
Tickets are $20 each.
Economic Prospects for the Northwest with Jake Procino, Workforce Analyst/Economist – Multnomah County, Oregon Employment Department
LIZ HARTMAN:: [00:00:00] This is Business LO, a podcast by the Lake Oswego Chamber of Commerce, which connects, educates, advocates, and champions our business community. We have nearly 500 members from international corporations to home based businesses, and we serve them all. Each episode of Business LO gives insider information to the local business community and the neighbors who support them.
And now let's talk business LO.
MICHELLE ODELL:: So we are jumping in mid month to discuss a very important topic for business owners. It's the corporate transparency act. And we're going to find out what it is and what you need to do as a business owner. I'm Michelle Odell and joining me for this episode is the Chamber's CEO, Liz Hartman.
We have an expert here today. His name is Martin Medeiros. He is a shareholder at Buckley Law with more than 20 years of experience. His practice area encompasses a range of services to clients, [00:01:00] including business formations and transactions, intellectual property. Technology applications and I. T.
Business succession management, privacy and security and copyright and trademark law. So martin, let's just get right into it. What is the Corporate Transparency Act? How does it impact Oregon businesses? And what is the purpose
MARTIN MEDEIROS:: of this? Thank you so much for that warm introduction. The Corporate Transparency Act is promulgated by the U. S. Treasury Service and basically, generally, and specifically, FinCEN, which is a financial crimes reporting organization under Treasury and what this is, is this is to the intent of the legislation was to try to get after people who are funding illicit drug trade and terrorism and stuff. And these are small companies.
So this is targeted at small companies generally. Less than five million in [00:02:00] annual revenue, and there are a number of exemptions, and sometimes the exemptions can kind of swallow the rule. But basically, those that are exempt are publicly traded companies, nonprofits and certain large operating companies where basically the feds have.
Sufficient information to figure out the cash flows of these organizations, like banks and what you have, that's essentially what it is. And what's the process? So we have this thing called the Corporate Transparency Act. As a small business owner, what do you want to know? First, you want to determine if you are a reporting company.
If you meet that status from Treasury, where they want to find out, hey, you're less than. Five million and you fall and there's no exemption that applies to you, therefore you have to report. A reporting entity is any entity that was organized under a state law. This can be an LLC, it can be a corporation, certain other organizations formed pursuant to the various state's [00:03:00] laws.
And we, we file articles of incorporation and articles of organization here in Oregon with the Secretary of State. The next step after determining if you are a reporting company is to identify Who the beneficial owners are. Generally speaking, beneficial owners are anyone who exercises substantial control over the company or owns 25 percent or more of the company.
And the next thing you want to do is understand the timeline of when you have to file. If you. We're in existence before January one, 2024. You have until December 31, 2024 to file. So please, if you want anyone's help with it, whether that's your CPA or a council, don't call them up on December 31st saying I have to file this.
If you were formed this year in 2024, if you have filed our organization or incorporated this year, you have a 90 days [00:04:00] after. 2024, you will have 30 days. And that's the timeline. And you can file online at it's FinCEN. gov slash B O I. We can put the URL on the We absolutely will. We'll make
Speaker 2: it very easy.
How are people finding out they need to do this? They're only sending an email about this? You
Speaker 3: will not get an email. So there's a lot of people either rightly or wrongly, you know, with good intent, with bad intent. More specifically, to fill the gap of where, quite frankly, this is one of the biggest criticisms we have, you know, we've kind of done a roadshow with the different chambers of commerce around Oregon, and we're talking to people in Washington state as well.
The issue is that they really didn't communicate this well to people. And so you have this like secondary market. Some of these companies have websites that are automated. They're totally legit. Some of them are. Profiteers with ill intent. So how did they disseminate this information very poorly? A lot of people are surprised and probably there's a number of the listeners right now who are saying, what do I have [00:05:00] to do and what are the penalties and we'll get to that.
But they didn't really broadcast or, or have a good ad campaign or social media campaign to let these small businesses know that yes, in fact, this is federal law and yes, the penalties are substantial. So Including imprisonment, by the way you know, once you decide your reporting company, you have to file and you can do that online.
If you go to FinCEN, what is a reporting company, just Google it or whatever browser you, you prefer. You will come up with the FinCEN's website and it's a pretty easy, I will give them credit, the, once you get to the website, they do walk you through in a very clear, How to file it. That said, a lot of people won't want to do that.
They will call up their CPA and not every, and no CPA and no attorney is required to do this. We do a lot of these filings because that's delegated. Some CPAs will do filings, [00:06:00] but they charge for it. Obviously, you can do it for free if you can figure out the Fed's website. What are the consequences if you don't file?
This is the big one. This is this is the big one. The fines you can accrue 500 per day, up to 10, 000 in fines total, and up to two years in prison for not filing. Those are the penalties.
Speaker 2: Wow. It is a little strange that it sounds like it's so important and it's so mandatory yet it's not clear.
What is the status, the effect of legal challenges to the act?
Speaker 3: Okay. That's a great question. So the promulgator of this, of financial crimes enforcement network, that's, I keep saying FINCEN, that's the long acronym. The law has been challenged in a number of states, including actually here in Oregon.
Nothing has really at least at the level we are now at the District Court level, it has not been successful. [00:07:00] On September 20th, the District Court of Oregon rejected a motion for a preliminary injunction. An injunction is when you tell a party to stop doing something, to enjoin enforcement of the CTA.
Basically, we had a group of people sue in Oregon to stop the government from enforcing this, and basically that motion was rejected. At the district court, kind of the trial court level, it'll be appealed. It may be appealed. Actually, I don't know the status of it, but essentially only a small percentage it with all that litigation, why is it being challenged?
Because there's a federalism question. Hey. State law regulates corporate formation. This is kind of like a super federal registration. So what's the constitutional nexus between that law? Some people are saying, well, the statute really didn't make clear of that nexus between why you can federalize this law when generally this was left up to the states.
So [00:08:00] I think plaintiffs lawsuits will have an unknown future. uphill battle challenging the law, and it'll take years to get through the appeals process. So you basically have to comply. And the problem is that FinCEN has indicated that to date, only a very small percentage of covered Entities have filed that tells you that there will be a lot of people who probably won't file.
I, you may know the numbers better than me, but there's tens of millions of small businesses in the United States and states like Oregon. I think 99 percent of all employment is with small businesses. Now that definition is. Fluid, you know, the SBA says a small business is anyone for 500 or less employees, I think is what they say, but the SBA definition doesn't apply to this because we're talking about 5 million and the only, the way to get out of it, if you have over 5 million and 20 employees [00:09:00] for a certain number of years, then you are no longer within the rubric of the corporate transparency actor, as we call it, the CTA.
Speaker: Why don't you tell us what information the federal government is asking for so that our folks know what's legitimate? Liz, that's a great
Speaker 3: question. I, and this is the part that I think a lot of people, they feel like it's invasive. Some of it's a no brainer, some of it's public record, but for a reporting company, you'll need to report the full name of the business along with any trade names or an organ, we call them assumed business names, ABNs.
You need a complete current U. S. address. The state of registration of your entity and a tax payer ID number used by the business for tax filings. Now that's fine. That's you know, that's public record. The part that starts to bite are the next three requirements that have people up in arms. And this is, this has to do [00:10:00] with the beneficial owner information.
Who is the natural person, a human being who can direct The course of that business and what do they need? The full legal name of the beneficial owner. Number one, number two, their date of birth, three, the complete current address and a copy of one of the following non expired documents, a U S passport, a state driver's license or identification document issued by a state local government or tribe.
So yes, you have to have a photo ID. If you're a beneficial owner, and that's a good question because a lot of people have, you know, LLCs can own LLCs and etc, etc. And they're like, Oh, the LLC is a beneficial owner. That's not true. They're looking for a natural person. So anyone who exerts substantial control, even if they have less than a 25 percent holding, if you exert control [00:11:00] substantial control over any entity, you will have to register as a beneficial owner in the, what they call the beneficial owner information report under the CTA.
One thing that comes up is, oh, they have this data, who can access it? I can talk about who can access the data. Basically, it's federal government agency engaged in national security intelligence or law enforcement. If the requested beneficial owner information is used in furtherance of that activity. If they're looking for someone bad, they can access that information.
And also, you know, state, local, and tribal enforcement agencies can have access to that information for criminal or civil investigations, which essentially is Any government agency, foreign law enforcement agencies with U. S. administrative sponsor can access the information, financial institutions subject to consumer due diligence requirements, [00:12:00] federal function regulators, and other appropriate regulatory agencies, and any U.
S. Treasury Department personnel. So a lot of people can see this information.
Speaker 2: It's the intent, like, okay, we're trying to make sure there aren't people doing terrible things to other people in the name of business. You're saying that it's a good intent, but not necessarily a good execution of this
Speaker 3: file.
You know, it all depends. If you're, there's, so there's two camps. They're like, Oh, absolutely. We want to get the bad guys and we have to give up some privacy. In order to get the bad guys, because we don't want to fund terrorism. We don't want to fund drug cartels, et cetera, et cetera. That makes sense. And on the other end of the spectrum is this is invasive and the U S government has this information already.
It just takes them various agencies have access to this information. For one, the internal revenue service, most of the secretary of state's have this information publicly, [00:13:00] why do we need another federal agency to step into state law? So those are the, the two very brief extremes of the spec. And one is kind of protect me, here's all my information.
The other is, Hey, that information is going to be misused because it can be used for, you know, nefarious, maybe political purposes. And those are the, the concerns. Gosh, that makes sense. Thank you
Speaker: for helping our businesses in Lake Oswego and the surrounding area. This just won't be the members. It's all of the 2, 200 licensed businesses around here.
Speaker 3: Well, thank you so much. I really appreciate all the work of the Lake Oswego chamber. And I'm honored to be on your podcast. So
Speaker 2: lucky to have you. Thank you so much for your time today. Buckley Law located in Lake Oswego is a full service law firm serving a wide range of clients from individuals to multinational corporations.
One of the firm's [00:14:00] strengths is the diversity of its expertise with dedicated teams focused on business law, Employment law, estate planning, probate and trust administration, family law, intellectual property, real estate law, and civil litigation. Go to buckley law. com. Once again, every day is a Chamber of Commerce Day in Lake Oswego.
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