A law that took effect January 1, 2024, has killed any hope of anonymity by using a Wyoming LLC, or an LLC in any state for that matter. Even if you are not worried about anonymity, you are going to be profoundly affected by this law.

In 2021, Congress passed the Corporate Transparency Act. This law created a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

The new program is called the Beneficial Ownership Information Reporting system, and it will be implemented by the FinCEN (Federal Financial Crimes Enforcement Network), a department within the Treasury Department – the same folks who brought you the IRS.

Never heard of FinCEN?  If you have any type of a business (corporation or LLC), it will become as common in your language as the term “IRS.” 

Under the new laws, “beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company.”

Reporting

As of January 1, 2024, you have to register the “beneficial ownership” of each LLC, corporation, limited partnership, or any other type of business entity. These are called “reporting companies.”  There are exceptions for the companies with over 20 time employees, banks, insurance companies, and lots of other companies that are already regulated. But this reporting hits the little guys – us!

A “beneficial owner” is any individual who, directly or indirectly exercises substantial control over a reporting company – OR – owns or controls at least 25 percent of the ownership interests of a reporting company.

Companies that existed prior to January 1st 2024 have to be registered sometime between January 1, 2024, and the end of 2024. If you create a new entity in 2024, you have 90 days from the filing with the state to register the company. If you create an entity after 2024 you only have 30 days to register it. This reporting requirement isn’t just a suggestion. You will register, because the penalty is $500 per day after the deadline plus a $10,000 penalty, plus a two-year extended stay in a federal facility.

You will notice the program is run by the Federal Financial Crimes Enforcement Network. These guys have guns, and they have all the collection power of their big brother – the IRS.

The registration forms are found at FinCEN.gov/BOI. Basically, the information they want is:

- Full legal name

- Date of birth

- Complete current address 

- Unique identifying number and issuing jurisdiction (with image) from one of the following non-expired documents: U.S. passport, state driver’s license, identification document issued by a state, local government, or tribe.

If you have a number of companies, like a lot of real estate investors do, you could get a personal “FinCEN identifier” and then just put that number on each company registration to identify yourself. You can get an identifying number from FinCEN by “providing certain information to FinCEN.”  The information you have to supply to get your FinCEN identifier is basically the same information you supply for an individual company registration.

I understand that we need to try and shut down the mob and politicians from laundering corrupt money, but this is just another government intrusion into our life. The bad guys will figure a way around it, and we are stuck with the harassment of another government agency. 

This is going to be almost impossible to comply with going forward. Anytime a registered person associated with a company has any change in their registration information, you have 30 days to inform FinCEN. When you get a new driver’s license, I am sure your first thought is “I have to reregister with FinCEN.” This is going to be a nightmare for companies with a dozen owners.

Privacy?

The big sales pitch you get at seminars and online for privacy is to put your corporation or LLC in Wyoming or some other state where the registered agent can put their name on the state records and keep your name off the state records. Of course, you pay the registered agent and the state for this “privacy,” and they are getting rich. You are getting poorer.

The name of the registered agent in Wyoming, whose name is on the LLC filing to hide your name, isn’t going to cut it as the beneficial owner under the new FinCEN laws. Your name is going to be the one reported.

In addition to the registration requirements, the government has put a massive data sharing agreement in place. Each agency is supposed to have access to every other agency’s information on you. This will speed up your qualification for government benefits, catch the bad guys, allow the IRS to catch cheats, and will provide tons of other benefits – according to the government. The agencies are getting much better at sharing data.

States are now even required to feed a lot of their data into the federal system and the data will be shared with the states. Even your bank will have at least some access to the data.

I Never Used The LLC

If you have an entity that you have never used, you may not have to report it to FinCEN. You will have to meet all six of the following criteria to have FinCEN consider it an “inactive entity.”

- The entity was in existence on or before January 1, 2020. □

- The entity is not engaged in active business. □

- The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially. □

- The entity has not experienced any change in ownership in the preceding twelve-month period. □

- The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period. □

- The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity. □

FinCEN may not require you to register, but remember, FinCEN is the little brother of the IRS. Dormant entities are dangerous when it comes to the IRS. Do you have an unused EIN out there? They act as IRS audit magnets. You need to kill those entities and EINs.

The state where the entity is filed will have a dissolution form on its state website. There is often a fee to formally kill an entity. 

Trusts

The question I keep getting is about a trust that owns an LLC or corporation. You should have your living revocable trust own the stock in your little corporation or your membership interest in your little LLC. The only reason for doing that is so your family won’t have to probate the entity when you die.

Having a trust own a corporation or LLC doesn’t offer any more asset protection or anything like that. There really isn’t much anonymity gained by having your trust own your LLC, because your name has to “be on title” as the trustee. Remember, on any ownership document (stock or membership) the trust’s “name” has to have: 

- Name of trust 

- Date of trust 

- Name of trustee

The registration requirement for FinCEN will undoubtedly require naming the trustees and the beneficiaries of the trust. Your trust isn’t secret, so you are not disclosing anything important, but this whole thing is going to be a pain.

Trusts don’t have to report. They are not “reporting companies.” There are two types of reporting companies: Foreign companies, which you are probably not worried about, and then domestic companies, which are “corporations, limited liability companies, limited partnerships, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.”  There isn’t any state filing with a trust.

However, if your living revocable trust owns an interest in a reporting company, the following individuals may hold ownership interests that will have to be reported:

- A trustee or other individual with the authority to dispose of trust assets

- A beneficiary who is the sole permissible recipient of trust income and principal or who has the right to demand a distribution of or withdraw substantially all the trust assets

- A grantor or settlor (the guy who sets up the trust) who has the right to revoke or otherwise withdraw trust assets

However, you own a reporting company, FinCEN is going to be a pain for you, and it could be expensive.

Scams to Watch For

The new Beneficial Ownership Information Reporting program is turning out to be a bonus for scamsters. They are offering to file for you, or they are calling and demanding information on your company because of the new law that you might have heard something about.

I’ll just let you read the government alert on this scam:

Alert: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled "Important Compliance Notice" and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages or click on any links or scan any QR codes within them.

A take-home message in this newsletter is watch for the reporting requirements on your LLCs and corporation, and don’t miss the deadlines. Be careful of the scammers that are going to capitalize on the entire FinCEN Program. FinCEN will never contact you by phone or the internet and will probably not even contact you by mail.

The IRS has almost entirely stopped contacting people by phone or the internet because of the fraudsters calling and saying they are from the IRS. Be CAREFUL! The old adage is true; if anyone says, “Hi I’m from the government, and I am here to help you,” you know they not from the government or they are lying.

FinCEN Law Struck Down By Federal Court

Late Friday night March 1st, an Alabama Federal Court slapped down the FinCEN program. In a surprising summary judgement ruling, Judge Liles Burke said that the Corporate Transparency Act (CTA) – which sets up the whole FinCEN registration program – is unconstitutional.

The judge actually outlined how the government could make the CTA constitutional by rewriting the law. 

He found that the law didn’t even come close to being constitutional. Thus, the summary judgement.

He also said that the penalties imposed by FinCEN for not complying with all the registration requirements ($500 for every day late, PLUS $10,000 penalty, PLUS 2 years in jail) were “offensive, unfair, and outrageous.”

He also pointed out that this was basically just a trap for the small business owners.

I agree! It will be nearly impossible to comply with the FinCEN registration law as it stands. Not only is there a complicated registration, with the most personal information for everyone involved in ownership or benefit from the company, but there are the ongoing requirements.

Anytime a beneficial owner changes address, gets a new driver’s license, changes ownership interest, or does a half-dozen other things, the company has to report to FinCEN within 30 days. For the company to monitor every owner and even its own activities to that extent will be nearly impossible. There will be slip-ups.

The Beneficial Ownership registration program is just a way for the government to take out the little companies it doesn’t like for some reason. If you pollute too much – like the farmer who raises cattle (we are already down a billion pounds in beef production this year) – if you are doing something politically incorrect, if you cross someone with political power, or any one of dozens of other reasons to be targeted by a federal agency, they can play the FinCEN gotcha game. That’s how dangerous I think this law is.

FinCEN Back in Business?

In a press release put out by FinCEN (Financial Crimes Enforcement Network), the government is flexing its muscles – and showing its teeth. The Treasury Department has basically said, “We don’t care what the court said. We are going ahead with the full weight of the law. FinCEN is the little bother of the IRS, but it is trying to grow up and be bigger and better than its sibling.

The case where the judge in Alabama Federal Court said that the entire Corporate Transparency Act (CTA) was totally and unquestionably unconstitutional was brought against the Treasury Department (Mother of the IRS and FinCEN) by the National Small Business Association.

In FinCEN’s press release after the court ruling, they have taken the position that only the plaintiffs in the case (the National Small Business Association and its members as of March 1st) are exempted from filing by the court ruling. They contend that the rest of us poor suckers are not protected by the constitution and are required to file (colorful language added for emphasis).

The target is back on your back. In light of the fact that they will use this law to target who and when they wish – and the fact that the law gives FinCEN the teeth to chew up a victim and literally destroy any small business – you had better consider filing.

Today’s Advice

If I were filing a new company this year, I would comply with this year’s 90-day filing requirement. The clock starts the day you file. Personally, I am not planning on starting a new company – I already have too many – so that doesn’t apply to me.

I do have companies existing prior to January 1, 2024. I will wait until the start of the 4th quarter to make my FinCEN filing on those companies and see if anything further shakes out on this court case, or if someone who is business friendly will be elected in the fall.

If it is totally unconstitutional for some people, it should be unconstitutional in mine and your case too. Don’t you think?

With FinCEN’s attitude, to me they are telegraphing their hatred for small businesses and thirst for power. This law gives them big enough teeth that we had better comply. The penalties are big enough that they can pretty much destroy any small business they want to.

Stay tuned for the next chapter in the saga.

Lee Phillips, ESQ

United States Supreme Court Counselor
https://bostonrealestateinvestorsassociation.com/fincen-will-you-comply/