Attention Small Business Owners: New Law Imposes Reporting Requirements

Small business owners have one more item on their compliance to-do list as the Corporate Transparency Act (CTA) took effect this year.

The CTA,[1] enacted as part of the Anti-Money Laundering Act of 2020 (AMLA), places new reporting requirements on many business entities in an effort to expose illegal activities, including the use of shell companies to launder money or conceal illicit funds. Around 30 million small businesses will be impacted by the law, which will establish a federal database of information, furnished by “reporting companies,” that will be accessible to certain authorities and organizations.

A final rule has been issued stating how the new law will be implemented to help businesses understand whether the law applies to them, how to comply, and which agencies will have access to the information they must report. CTA violations carry civil and criminal penalties, including imprisonment.

Why was the CTA passed?

The CTA was passed as part of the National Defense Authorization Act for Fiscal Year 2021. It directs the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to gather information from private companies about their owners and controlling persons. Acting Director Himamauli Das said, “FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing.”[2]

To counter the risks allegedly posed by anonymous shell companies, the CTA mandates the creation of a national registry that contains certain information about business entities that are formed by filing a document with a state’s secretary of state or similar office.

What does the CTA require?

Effective January 1, 2024, the CTA requires that certain businesses disclose to FinCEN information about the company, its beneficial owners, and in some cases, the company applicant.

Reporting companies—defined as any company with twenty or fewer employees that is formed by filing paperwork with the Secretary of State or equivalent official—that are created or registered prior to January 1, 2024, have until January 1, 2025, to file an initial report; reporting companies created or registered after January 1, 2024 and before January 1, 2025, will have ninety days after creation or registration to file a report. Entities created on or after January 1, 2025 will have 30 days to submit the reports to FinCEN.

Small business organizations such as the National Small Business Association (NSBA) and the National Federation of Independent Businesses (NFIB) oppose the CTA, calling it cumbersome, intrusive, overly punitive, and unconstitutional. NSBA states that small businesses are unfairly impacted because they usually do not have compliance teams or staff attorneys.[3]

Eighty percent of the small businesses surveyed by NFIB are against the new reporting requirements, which NFIB claims are unclear. NFIB notes that each state has different standards and practices for business entity formation, potentially leading to uncertainty about whether a business must report to FinCEN. For example, some states require sole proprietorships and general partnerships to register with state agencies, while other states do not.[4]

Does the CTA require my business to report?

The CTA applies to companies that are created by filing a document with a state authority. Typically, this includes corporations and limited liability companies. Depending on the state, it could also include limited partnerships, professional associations, cooperatives, real estate investment trusts, and trusts. In addition, the CTA applies to non-US companies that are registered to operate in the United States.

NFIB estimates that, based on these rules, 30 million small businesses will have to report to FinCEN. However, the CTA exempts around two dozen categories of companies, including companies that

  • are publicly-traded;
  • have more than twenty full-time US employees;
  • filed a previous year’s tax return showing more than $5 million in gross receipts or sales;
  • have an operating presence at a physical US office location;
  • operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or
  • are subsidiaries of exempt organizations.

The exemptions, which generally include larger companies that are already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies.

What information must be provided in the reports?

The CTA requires three categories of information to be reported: company, owners, and applicant.

  • Domestic reporting companies created before January 1, 2024 must provide information about the company and its beneficial owners.
    • Beneficial owner is defined in the CTA as an individual who exercises “substantial control” over the reporting company or has an ownership interest of at least 25 percent. Company senior officers, directors, and others who make significant decisions on behalf of the company may meet this statutory definition of “substantial control,” although the broad definition may cause confusion in some instances.
  • Domestic reporting companies created on or after January 1, 2024, must provide information about the company, its beneficial owners, and its company applicants.
    • A company applicant generally is the individual who files the formation document with state authorities for the reporting company.

Technically, the information to be filed with FinCEN is called a Beneficial Ownership Information (BOI) Report. The following is what is required in the report for a company, an owner, and an applicant:

  • The reporting company must provide its name and any alternative (DBA) names, the address of its principal place of business, the state of formation, and its taxpayer identification number or FinCEN identifier.
  • Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.
  • A company applicant is required to submit the same information as a beneficial owner.

Who has access to FinCEN BOI reports?

The CTA authorizes FinCEN to disclose BOI information to five categories of recipients:[5]

  • US federal, state, local, and tribal government agencies
  • Foreign law enforcement agencies, judges, prosecutors, and other authorities
  • Financial institutions
  • Federal regulators
  • US Department of the Treasury

FinCEN may only disclose BOI information “under specific circumstances”: there are more stringent requirements for agencies other than those engaged in national security, intelligence, and law enforcement activities. There are also restrictions on how the information may be used and how it must be secured.

Some small business owners have expressed concerns about the privacy implications of the CTA. The NSBA has filed a lawsuit challenging the CTA’s constitutionality, in part on privacy grounds over sharing “sensitive information” with the government[6].

Are there penalties for noncompliance with the CTA?

Penalties for noncompliance may be steep. Willingly providing false information (including false identifying documents) to FinCEN, or failing to report complete BOI information, can result in:

  • Fines of $500 per day, up to $10,000
  • Imprisonment for up to two years

Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days.

Get help with CTA reporting requirements.

Understanding how the CTA applies to you, how it will affect your business, and what you must do to comply introduces new burdens that you may have scarce resources to address.

Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further complicating compliance efforts. But compliance is critical for business owners who want to avoid possible sanctions.

We can help you determine whether the CTA applies to your business and the steps needed to meet its reporting requirements. With the law’s effective date just months away, we encourage you to reach out now to start working on a CTA compliance strategy.

[1] National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, 134 Stat. 3388 (Jan. 1, 2021).

[2] Press Release, U.S. Dep’t of the Treasury, Financial Crimes Enforcement Network, FinCEN Issues Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency (Dec. 7, 2021), https://www.fincen.gov/news/news-releases/fincen-issues-proposed-rule-beneficial-ownership-reporting-counter-illicit.

[3] National Small Bus. Ass’n, The Corporate Transparency Act, https://www.nsba.biz/cta (last visited June 27, 2023).

[4] U.S. Treasury’s Final “Beneficial Ownership” Rule’s Impact Explained, NFIB (Oct. 19, 2022), https://www.nfib.com/content/analysis/national/u-s-treasurys-final-beneficial-ownership-rules-impact-explained/.

[5] Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77404 (proposed Dec. 16, 2022).

[6] Dave LaChance, Small business group sues over federal ownership database, cites concerns over sharing ‘sensitive’ info, Repairer Driven News (Nov. 17, 2022), https://www.repairerdrivennews.com/2022/11/17/small-business-group-sues-over-federal-ownership-database-cites-concerns-over-sharing-sensitive-info/.

End of Year Estate Planning Actions to Consider

As 2023 winds down and the holiday season ramps up, it is a good time to consider several estate planning actions.

  1. Create a “roadmap” document to help your family in case of an unexpected event or death. Such a summary document should contain a list of your important contacts, financial and legal advisors, financial institutions, account numbers, life insurance policies, online passwords, phone passwords, and specific instructions on how to proceed in case of an emergency.
  2. Talk it over with your family. As families gather around for the holidays, it is good for parents to talk to their adult children about their estate plans. Likewise, parents with young children should let their selected guardians know who they have named to help raise their kids in case something happens to both parents.
  3. Consider large gifts. The annual gift tax exclusion for individuals is currently $17,000. You can avoid utilizing a portion of the lifetime gift and estate tax exclusion (close to $13 million for 2023). Annual gifts can be made to as many recipients as desired as long as each gift doesn’t exceed $17,000 (or $34,000 for married couples electing split gifts).
  4. Review your current plans and documents. The end of the year is a good time to reflect upon any major life changes, such as a new marriage (or divorce), new kids and grandkids, relocations, or retirements. Such life changes should be accounted for in your estate plan to make sure your documents are current with your situation and desires.
  5. Call your local estate planning attorney. Now is a great time to schedule an appointment to review your plan. And if you are like 60% of the country without a Will, it is a great time to scratch “get a Will” off your to-do list. Call me at 513-815-7006, email me at mccarthy@danmccarthylaw.com, or visit my webpage at danmccarthylaw.com to schedule your appointment.

Ohio’s New Distracted Driving Law: Phones Down!

According to the Ohio State Highway Patrol, since 2018, distracted driving has led to over 63,000 crashes, over 1,800 fatal or serious injuries, and over 40,000 violations,[1] 39% of distracted driving crashes involve an at-fault driver between the ages of 15 and 24.[2] Previously, drivers over the age of 17 had to commit another traffic violation in addition to texting while driving to be pulled over. The Ohio legislature passed a new law seeking make distracted driving laws stricter.

In Ohio, it is now illegal to use or hold, with any part your body, a cell phone or other electronic device while driving. Ohio’s SB 288 allows police officers to pull over drivers for violating the new law. But the law also has some exceptions and different requirements depending on the age of the driver. Law enforcement will be issuing citations under the new law beginning on October 05, 2023.

Drivers over the age of 18 are allowed to make and receive calls so long as they can do so hands-free via some other means like using speakerphone, connecting the phone to the car with Bluetooth, or using an earpiece.

The new law, with some exceptions, prohibits any use of one’s phone that requires them to hold and interact with the phone. For instance, and among others, dialing a phone number, sending a text message, and browsing the internet are all prohibited regardless of the driver’s age.

The law also lists some narrow circumstances under which the broad prohibition is lifted. For example, phones can be used if the driver is reporting an emergency to law enforcement or another, similar entity. Drivers can also make and receive calls by holding the phone to their ear so long as the call can be answered using a single swipe. And drivers can use or hold their phones while stopped at a traffic light or parked on the side of the road during an emergency. Absent any of these exceptions, drivers who violate the law are subject to penalties.

In the first offense over the course of two years, the violator will have two points assessed to their license and they will be subject to a fine of up to $150. The second offense in two years results in three points and up to a $250 fine.  For three or more offenses in two years, the violator receives four points, up to $500 in fines, and a possible 90-day suspension of their license. Each of these fines double if the violation occurred in a work zone.

[1] https://statepatrol.ohio.gov/dashboards-statistics/ostats-dashboards/distracted-driving-dashboard/

[2] Id.

Year-End Checklist: Planning & Protection for Your Family

As the calendar turns to December, and before the rush of holidays kicks into high gear, now is a great time to review your estate plan and insurance coverage. Have you updated your estate plan recently? Do you even have an estate plan? When is the last time you met with your insurance agent to discuss your car and home coverage? Do you have enough life insurance? Here are five things that every family should review.

  1. Review your estate plan. Have you had any life changes this year? Good reasons to review and update your estate plan include marriage, a new baby, divorce, a death in the family, perhaps you bought a vacation home or condo out of state.
  2. Review your beneficiary designations. When is the last time you checked your beneficiary designations on your life insurance or retirement accounts? Do you have retirement benefits from an old job that you have not thought about for years?
  3. Talk to your insurance agent. Ignore the television commercials that brag about state minimum coverage. Make sure that your family is adequately covered if you or a family member causes a car accident. The state minimum coverage in Ohio is $25,000/50,000. With the ever-rising cost of medical care, that can go very quickly.  Make sure that your liability coverage is sufficient that your personal assets will not be at risk. I always highly recommend umbrella policies as well, which provide excess coverage in case of a more serious accident. Finally, make sure that you have uninsured and underinsured motorist coverage. If you are injured by a driver with either no insurance or very low limits, your uninsured or underinsured motorist coverage may be the only way you can be compensated for your injuries.
  4. Review your life insurance policies. Life insurance is particularly important for families with young children. But your need for life insurance evolves and changes over the course of your life. It is a good practice to occasionally review your coverage and make sure that you have the right amount of life insurance for your needs.
  5. Talk to your family. Avoid conflict and surprises when possible. Tell your family about your plans and wishes. Let your family know that you have an estate plan, where to find it, and what to do in case of an emergency. Stay organized and tell your family where they can find your important documents.

Some of these checklist items you can do on your own. For others, you may need to contact your financial advisor, CPA, or insurance agent. Please contact McCarthy Law Office to discuss your estate planning needs. I will make the process as straightforward and painless as possible. Take these steps to plan for and protect your family as 2022 turns to 2023.

 

How to Include Social Media and Online Accounts In Your Estate Plan

An estate plan often focuses on tangible property such as jewelry, real estate, money, and vehicles. However, in this age of technology, it is important to remember to include your digital assets. Digital assets consist of everything we own online. Because we spend more time on computers and smartphones than we ever did before, you may not realize how much digital stuff you own, from photos and videos to online accounts, cryptocurrency, and nonfungible tokens (NFTs).

Why Is It Important to Plan for Digital Assets?

Planning for digital assets is important for several reasons. First, without a plan, digital assets may get lost in the Internet ether and not pass to your loved ones after your death due to the simple fact that their existence is unknown. Second, planning now means your family will not have to worry about hunting for these items upon your death while also grieving a beloved family member. Third, like most adults (roughly 70 percent of them), you want certain aspects of your digital life to remain private. If you do not create a plan, your loved ones may learn things that you wish to keep secret. Finally, planning now can minimize the risk of identity theft, which happens to 2.4 million deceased Americans each year. Keep reading to learn more about why it is important to include digital assets in your estate plan and how to account for them.

Digital Assets: What Are They?

Instead of existing in photo albums and on videotapes and DVDs, most of our family photos and videos are now digital. Even if they lack commercial value, they certainly have sentimental value that you want to preserve for your family and friends. Social media accounts containing your photos and videos can also have value to your loved ones when you are gone. For example, a Facebook account can serve as a memorial after you pass away. When you consider all of the other accounts that you log into (more than 130 on average), the list becomes quite lengthy.

 

Digital assets that you may own include the following:

  • Social media accounts (e.g., Facebook, Twitter, LinkedIn)
  • Financial accounts at brick-and-mortar and online institutions
  • Business documents and other files stored in the cloud
  • Cryptocurrency
  • NFTs
  • Databases
  • Device backups
  • Internet domain names and uniform resource locators (URLs)
  • Streaming service accounts (e.g., Netflix, Peacock, Hulu)
  • Merchant accounts (e.g., Amazon, Etsy, eBay)
  • Gaming tokens
  • Virtual avatars
  • Points-based loyalty programs (e.g., for groceries, gas stations, airlines, and hotels)
  • Rights to intellectual property, artwork, and literature
  • Online betting accounts
  • Monetized video content

 

Including Digital Assets in Your Estate Plan

Taking inventory of your digital assets may take some time, but it is worthwhile. If something were to happen to you, your estate planning attorney or another trusted person should have complete access to your online footprint. This includes usernames and passwords for all accounts. Tools such as Dashlane or the password manager integrated in your browser can be used to simplify the storage of usernames and passwords.

 

In addition, you should continuously back up all digital assets, including photos and important documents, to the cloud, and ensure that your attorney and trusted person can easily access them when the time comes.

 

Because they are not controlled by governments or banks, cybercurrency and NFTs must be handled carefully. You do not have the option of calling customer service to reset your password if you forget or lose it. NFT and cryptocurrency passwords should be stored online in a “hot wallet,” or in an offline device known as a “cold wallet.” Either way, someone needs to know how to access your passwords when you cannot.

 

Other estate planning considerations for digital assets include the following:

  • Your estate plan can provide that your digital possessions be handled by one or more cyber successors who can distribute your digital assets like tangible property.
  • One cyber successor can control your Instagram account, for example, while another can take possession of your Bitcoin.
  • Keep in mind that passwords should not be memorialized in your will, especially regarding cryptocurrency, as they could be made public if the will is submitted to probate court.
  • Consider how technologically savvy a person is before appointing that person as your cyber successor.

Next Steps for Your Digital Assets

Talk to McCarthy Law Office about your digital assets and cyber successors. Have a conversation with potential cyber successors about how they would handle your assets, and make sure that they would carry out your wishes before appointing them. Digital assets can be placed into a trust or distributed through your will, or you could grant access to them through a power of attorney. With the help of an experienced estate planning attorney, you can feel relieved that your digital assets will be easily located, managed, and passed to your loved ones.

Why Every Ohio Driver Should Have Underinsured and Uninsured Motorist Coverage

Ohio requires all drivers carry liability insurance. However, the state only requires a minimum policy of $25,000/$50,000. The first number is the required coverage per person, while the second number is the required coverage for all persons injured in any one collision. Ask anyone who has ever received any medical care (so probably everyone) medical bills can get very high very quickly. Add in lost wages and other economic damages, you can see that $25,000 coverage is not going to go very far in the event of a collision.

So what happens if you are hit by a driver with the state minimum coverage? You may very well be limited to recovering their policy limits. While injured parties can seek the personal assets of negligent drivers, in reality, that can be difficult, especially if the driver who caused the wreck has limited assets. The best solution is to protect yourself by carrying underinsured motorist coverage (UIM). This coverage kicks in for amounts over the policy limits of the at-fault driver. The amount you should carry depends on your personal situation, but it is certainly advisable to exceed the state minimum requirements of $25,000.

According to some published reports, over 10% of Ohio drivers disregard the law and carry no liability insurance. That is why it is also important that you carry uninsured motorist coverage (UM). This coverage applies if you are injured as the result of negligence of a driver with no insurance.

Ohio does not mandate either UIM or UM coverage, but everyone should consult with the insurance agent to be sure you are covered if you are hit by a driver with either low limits or worse, no coverage at all.

If you are injured by the negligence of an uninsured or underinsured driver, let McCarthy Law Office guide you through the process and fight for the maximum amount of compensation.