#66: Understanding The Corporate Transparency Act

In this episode, titled “Understanding The Corporate Transparency Act,” the Teaching Tax Flow podcast hosts, Chris Picciurro and John Tripolsky, along with expert guest Jeff Hampton, dive into the intricacies of the newly enacted Corporate Transparency Act (CTA). This conversation is a must-listen for businesses and investors keen on remaining compliant with the latest federal laws that aim to curb money laundering through increased transparency.

The podcast provides a rich discussion on the implications of the CTA on small businesses and investors, focusing particularly on entities formed before and after January 1, 2024. The dialogue lays out what the law expects, emphasizing the importance of identifying beneficial owners and the type of entities affected. With ongoing updates from the federal government, the episode serves as an essential guide for staying abreast of compliance requirements without panic.

Key Takeaways:

  • The Corporate Transparency Act aims to combat money laundering by monitoring small companies with less than $5 million in gross receipts or 20 or fewer employees.
  • Entities formed before January 1, 2024, have until January 1, 2025, to comply with the CTA, while new entities formed after that date have a 90-day compliance window.
  • “Beneficial ownership” is defined as individuals having at least 25% ownership or exercising substantial control over a reporting company.
  • Trusts, especially revocable and irrevocable ones, are currently not considered reporting companies under the CTA unless they meet specific business purposes.
  • It’s essential to work with professional advisors to stay current with CTA regulations and ensure long-term compliance without making knee-jerk reactions to changes.

Notable Quotes:

  • “This is just another one of those things we just got to get in line with. If you’re going to be an investor and you’re going to have LLCs or run a business.” – Jeff Hampton
  • “One of the things to do is to be in touch with your advisors who know the direction of this and are working with investors every day to make sure this is in place.” – Jeff Hampton
  • “Don’t just go rush into this right now. Let’s let the dust settle just a little bit.” – Jeff Hampton
  • “It’s the last thing we need, but whether we like it or not, we’ve got more compliance.” – Jeff Hampton



Episode Sponsor:
Strategic Associates, LLC
Roger Roundy

0:00:04 Intro: Welcome to the Teaching Tax Flow. Podcast, where the goal is to empower and educate you to legally and ethically minimize taxes paid over your lifetime.

0:00:17 John Tripolsky: Hey, everyone, and welcome back to the podcast. Today on episode 66, we are about to dive deep into the CTA or the corporate transparency app. But as always, let’s take a brief moment and thank our sponsor.

0:00:31 Ad Read: This podcast is brought to you by strategic associates. Are you a high income earner, real estate investor, or successful entrepreneur who is frustrated by having to pay $75,000 or more of annual tax liability? If so, strategic associates can help. Your first step to saving thousands, if not hundreds of thousands, is to contact Roger Roundy at Roger@strategicag.net or by calling 801-641-2956 and be sure to tell them TTF sent you.

0:01:02 John Tripolsky: Hey everybody, and welcome back to Teaching tax Flow, the podcast. If you are in the northeast, hopefully you’re experiencing all the lovely snow here in the middle of January. As expected, it is wintertime whether you like it or not. We’re not all in these warm places down in the south. And speaking of warm places and warm personalities, Chris Bakiro. Welcome back, sir. How are you?
0:01:24 Chris Picciurro: Oh, John, that’s just so kind of you. I am doing great. Awesome to be back on our own podcast here, but it’s good to be back. I am really excited about the topic today. I’ve been chomping at the bit to get our guest on. This is an issue that has probably the number one most asked question from business owners over the last month or so. I’ve known about it for quite a while. We started talking about it this summer, but we couldn’t have a better person on than Jeff Hampton.

0:01:59 Chris Picciurro: And he was gracious enough to join us. And we’re going to talk about the Corporate Transparency act. We’re going to refer to it as CTA at times. Jop, thank you so much for joining us.
0:02:15 Jeff Hampton: Absolutely. I appreciate you guys giving me the time to come on and we get to talk about a new federal law that requires us to comply with the government. It’s the last thing we need, but whether we like it or not, we’ve got more compliance.
0:02:29 John Tripolsky: That sounds, you know, it’s funny, Jeff. I just literally put two and two together. Me being in the marketing world for so long, I hear CTA and I think call to.

0:02:37 Jeff Hampton: Yeah.

0:02:38 John Tripolsky: And now here we are talking about the corporate Transparency act. And I think it’s pretty ironic that literally it is a call to, I mean, probably the best place to start this one off. Know those that haven’t heard of the corporate Transparency Act. A, what the world is this thing? And b, is this something that people really need to be paying attention to it right now at this very minute, or is this something that the cans getting kicked down the road a little bit?

0:03:06 Chris Picciurro: Yeah.

0:03:06 Jeff Hampton: So good question. So the whole spirit of the law, the reason why it was passed, was to try to stop money laundering. So Congress was coming in saying, okay, we think there’s these shell companies that are being used amongst organizations. A lot of crime going on out there. And so what we want to do is be able to monitor them, know who is in control or exercising substantial control of these shell companies.

0:03:34 Jeff Hampton: And so what they did is they passed this new law, the Corporate Transparency act, which is actually not new, but it’s now gone into effect that basically says that starting January 1, if you set up any asset protection, any LLC, limited partnership, what they call a reporting company is what’s defined as a reporting company that essentially includes any type of entity that. And here’s the definition. It says that any corporation, LLC, limited partnership that files within a us state.

0:04:06 Jeff Hampton: Right. So whether it’s in a us state or even if it’s a foreign, a non us entity, you have to actually report to the Financial Crimes Enforcement Network, which is better known as Finsen is what people refer to it. So what has to be done here is they are wanting to monitor small, what they define as smaller companies. And we’ll get into what some of the exceptions are here in a minute, but they are wanting to make sure and monitor them by being able to force people to identify who they are and to be able to know who is the one kind of pulling the strings behind the scene.

0:04:40 John Tripolsky: So a lot of thought went into this. Obviously, you mentioned money laundering. Obviously that’s a big issue, for lack of better terms. So what types of businesses? I mean, really, I shouldn’t say how scared people should be around this, but I honestly haven’t heard about this until I believe it was Chris that had mentioned this to me a while back. But you have some people that are absolutely freaking out about this. They’re kind of flipping upside down depending on what industry or if they’re tax pro, et cetera.

0:05:12 John Tripolsky: So how does this really affect just the overall process and just the management of, say, you have a company. I know, obviously information needs to get updated every so often. What does that look like? Why should or shouldn’t people be really freaking out about this?

0:05:28 Jeff Hampton: Now, first of all, let me clarify what I said earlier. So if you have set up any type of llcs, any entity or what they call a reporting company since January 1, which we’re just talking about a couple of weeks here going into the new year, you are going to be immediately required to comply with these requirements within 90 days of setting them up. Okay? Now, let me not panic everyone. So let’s step back and say if you already have llcs or reporting companies that were set up prior to January 1, 2024, you basically have the safe harbor until January of 2025.
0:06:09 Jeff Hampton: Now, this is really important because I’m going to tell you, the federal government is still figuring it out. Okay? So they’ve passed all these laws, but like, when I went onto the Finsen website, they’ve changed what was on there in terms of reporting three times in the first ten days. And so one of the things I’m reminding people is it’s a good thing if you have your stuff in place already, llcs, asset protection, if that’s already been done prior to January 1, 2024, then you’ve got a year. Okay?

0:06:40 Jeff Hampton: So relax. And by the way, I can promise you it’ll change for whatever’s going on now, there’s going to be some differences in how it’s rolled out by the federal government. And by the way, originally there was a 30 day deadline that you had to reply or you had to comply with. And now because the federal government wasn’t ready for their own law, they’re having to extend that out to 90. So one of the things I’m reminding people, and for my own clients, I’m suggesting to not even really file yet until we get through January.

0:07:06 Jeff Hampton: Let’s let the government kind of figure themselves out, because one of the things we want to do is make sure that they’re not going to change up some of the, not just the rules, but the way it’s being enforced, I want to make sure that we have some uniformity on that so there’s no reason to panic. Okay. And let me just clear this up, too. A lot of people ask, well, Jeff, if I have to comply with this now, doesn’t this ruin my asset protection?

0:07:29 Jeff Hampton: If I had an asset protection structure in place, am I ruined?

0:07:33 Chris Picciurro: No.

0:07:33 Jeff Hampton: In fact, some of the guidelines that were just recently released at the end of the year further explained none of the federal agencies, Finsyn is not permitted to disclose this to anyone privately, not to any attorneys, nothing like that. They can only share it internally. Now, of course, they can share it with the IRS, right? They can share it with other federal agencies and state agencies that might be bringing lawsuits if someone’s committing a crime.

0:07:59 Jeff Hampton: Otherwise, that’s all this is. Just like, I can’t get your copy of your tax took. How long did it take for people to get Trump’s tax returns? Right? I mean, you can’t just immediately get access to those documents, so it doesn’t ruin your privacy, per se. But it is a pretty serious requirement that once you’re in that timeframe to be in compliance, there can be some pretty punitive penalties if you ignore it.

0:08:23 Chris Picciurro: That’s true. And that’s where people have to understand. I love what Jeff’s saying is, don’t panic, be aware. And there are two separate types of rules with this. You’ve got what I call the grandfathered entities. And when Jeff says reporting company in general, she’s right. It’s going to be any type of company that files with a state or somewhat similar entity. If you had an LLC, and we’re just saying LLC, but any type of entity prior to January 1, 2024, your reporting requirement, I believe, doesn’t start until January 1, 2025. And that’s a moving target. Remember what happened with PPP when it came out back during the pandemic?

0:09:04 Chris Picciurro: It came out, and banks didn’t know how to react. So I think that new entities, we can already see the writing on the wall with the government saying at the beginning, if you create a new entity, January 1, 2024 or beyond, you have a 30 day period to report. Now it’s 90 days. And again, it’s something that people just need to be aware of and making sure that they understand the rules. And working with a professional, we talk about building your board of directors, working with a professional that can identify, because there are some special rules that are going to go beyond the scope of what we’re talking about here, because we really want to give everyone a really nice 30,000 foot view of this, of what is even a reporting entity based on is their activity.

0:09:53 Chris Picciurro: What happens if you had an LLC you formed five years ago and never did anything with it? Jeff made another great point. There are some really high punitive damages if you don’t comply. So, way I’m looking at this is, this is a seatbelt rule, right? I mean, growing up, when I was a kid, it’s showing my age, you didn’t have to wear a seatbelt. We were flopping around the back seat. Seatbelt didn’t even go around your shoulder.

0:10:19 Chris Picciurro: Now, the first thing we do when we get in a car is put a seatbelt on some of the cars. Even put a seatbelt on for you. So we’re in that adjustment period of, hey, we might have these old cars that don’t have the new seatbelts. We’re going to have these new cars that have that seatbelt. One thing I wanted to ask Jeff, because a lot of the listeners do form living trusts and do some estate planning. Would a living trust, in your opinion, or an irrevocable trust be a reporting entity or maybe, and I know these rules are changing day by day, so.

0:10:50 Jeff Hampton: As of right now, that’s a really great question. As of right now, unless you were talking about setting up a statutory or business trust, because there are certain states that you can set up statutory trusts, and it’s basically for a business purpose, trusts as of the guidelines now, are not required to be in compliance with the Corporate Transparency act. Now, we’re continuing to try to follow to see any of the guidelines as they come out.

0:11:17 Jeff Hampton: But certainly I know lots of people are using revocable trusts and even some irrevocable trusts in this situation. So I’m going to continue to monitor that. But as of right now, notice what the spirit of this law is. Spirit of the law is to be monitoring business activity and small business activity particularly, and I can define what that is. They start defining what a small business is as if you’re making less than 5 million in gross receipts, gross revenue, and if you have 20 or fewer employees, this is where you start looking at it, saying, okay, that’s who they’re monitoring, because that’s where they’re seeing a lot of this money laundering or criminal activity that’s going on. So, no, as of right now, you should be good.

0:12:00 Chris Picciurro: Absolutely. And we always talk. One of the three laws of teaching tax law is that tax agencies are your involuntary business partner. Now, I don’t know that the IRS is really thrilled about this rule. It really doesn’t have to do with your tax preparation, but it is definitely very important to comply with the laws because if you don’t, if you don’t renew your llc, if you don’t act like a separate entity, then your asset protection that you’ve worked hard to set up and paid a significant amount of money for might not even be there for you. So this is definitely something that the intent was, yes.

0:12:39 Chris Picciurro: To amlle anti money laundering. But sometimes, as Jeff alluded to, we already see changes. There’s unintended consequences of these laws being passed, and the amount of paperwork and compliance is going to be significant. But again, there are some type of exempt entities out there. One of the things we wanted to ask Jeff about was, okay, we know that new entities here in 2024, they have at this point a 90 day requirement right now.

0:13:15 Chris Picciurro: While we’re listening to this or while we’re recording this, I would probably let the dust settle a little bit as well. I feel like there’s a lot of people trying to shock people out there and scare them into doing compliance right away because they think they’re going to get penalized tomorrow. Jeff, what’s your advice for someone that maybe has had an entity for ten years, eleven years, let’s say they’ve owned an LLC, owned some properties in it.

0:13:44 Chris Picciurro: So obviously they’re the pre January 1, 2024. Can you touch on those requirements a little bit? Yeah.

0:13:51 Jeff Hampton: So the way I would, here’s what I want you to do, and I’m exactly right, is don’t panic. Treat this just like you have your LLC requirements you have every year right now. So what do you have to do? In many states, there are certain things that you should do to be in compliance with your LLC laws already. So now you need to kind of treat this the same way. Your reporting requirements don’t start until 2025.

0:14:15 Jeff Hampton: So on our list of to Dos, our little checklist of things that we just don’t want to forget about, check in with this halfway through the year. Look at this as a Q three, Q four issue to take a look at and see how has fence in and the federal government made any modifications to this. Because I can promise you, think about the number of llcs that are out there. Think about they are going to streamline this process and they’re going to realize that they’ve created a monster in reporting and being overwhelmed with that Finscen website because it kept crashing all these issues.

0:14:45 Jeff Hampton: So they’re going to allow some mass reporting opportunities and different things that will take place that they don’t have in place right now. So if you’re pre 2024, just Relax, put this down just like you need to do your annual meeting minutes, do an annual meeting, state report filings. Make this just another one of those in your list, because as an example, really all they’re going to require you to do on this.

0:15:07 Jeff Hampton: They have a list of items that you have to put down. Your name, your DBA, essentially their business, your address. There’s a few things on there. The one thing that is a little interesting on this, they are making you attach an id. So there is an id that’s associated with this. So they want to make sure that the person who’s actually filling this out is going to be also the person who is associated with the beneficial ownership of that entity.

0:15:37 Jeff Hampton: But it’s not any different than you’d have to send over information to someone to close a real estate deal or to anything else. You just have to provide information saying you are who you say you are. So don’t panic, you’ve got time.

0:15:51 Chris Picciurro: And I think that’s one of. So that’s one of the things I wanted to make sure we touch on. That concept of beneficial ownership. It doesn’t necessarily at this point now, I think my personal opinion is the beneficial ownership definition will narrow, but at this point, it doesn’t necessarily mean you are an owner of the organization. Can you touch on what common types of beneficial ownership is? And also if it changes, is there a requirement to update your filing at this point?

0:16:24 Jeff Hampton: Yeah. The law says that each reporting company must identify each of their beneficial owners. I’m going to give you, without getting too legalese on this, but there’s only one way to say it. As a lawyer, I have to make sure I don’t hedge on this either. I want to make sure you understand from the legal definition, it essentially says any individual who directly or indirectly exercises substantial control or over the reporting company, or who owns or controls at least 25% of the ownership interests in a reporting company.

0:17:02 Jeff Hampton: Right. So if you own at least 25% and you could get real deep into this and we can save that for some other time on what that means to have ownership, whether that’s equity stock, voting rights, you name it. Those are areas that if you have at least a 25% interest, there is a requirement to report. So that’s how they define what a beneficial owner is within this. Or let’s say you have llcs can also be set up where you can have officers. If you’re an officer and you’re making decisions on behalf of that LLC, that can also be one who is required to report as well.

0:17:40 Jeff Hampton: Think about this. I want to simplify this as best I can. Whoever is in control of the whole thing, if you’re the one pulling the levers or if you own 25% or more, that’s who FinCEn is going to be looking at to say we expected you to be in compliant.

0:17:54 Chris Picciurro: That’s a great way to put it.

0:17:55 John Tripolsky: And really with that too. And I’m so glad that you really harped home.

0:18:01 John Tripolsky: Well, I think that’s a new one.

0:18:02 John Tripolsky: Harped home.

0:18:05 Chris Picciurro: Wait a second time out here I’ve heard a rumor.

0:18:07 John Tripolsky: This is why I heard a rumor.

0:18:09 Chris Picciurro: Jeff’s quite a trumpet player, but I don’t think he better do the job. I haven’t seen
him outside the house playing his harp lately. I don’t know. Jeff, can you confirm your harp playing?

0:18:22 Jeff Hampton: I hung up the harp.

0:18:24 Chris Picciurro: Sorry.

0:18:24 John Tripolsky: Not doing well. Well, you know what, now harped home. I’m going to put that in the intro or somewhere around what? I’m still caught up on the fact I wrote a note here for myself about. I wrote negligence, ignorance, negligence and penalties. And you know what’s funny? As I think about that, I’m like, wow, okay. Yeah, there’s significant. They’re going to be on you from what it sounds like for this. But I’m also glad that, or I should say I make the comparison of it sounds like the government is changing their mind with this is about as often as it is a conversation of me and my wife talking about where to go to dinner. So I’m super happy to hear that in our household we are not finding each other as much as the government will for compliance issues.

0:19:13 John Tripolsky: But as you harped home again, Jeff, I’m glad that you said that multiple times about people just calm down a little. Mean. I was just popped on a message board here and I searched corporate Transparency act and sure enough, there’s two sides of the fence. Well, somebody was basically saying like, you need to be watching this every day, every day, every day for updates. So you’re saying just hold tight, calm down a little bit, take your seat, focus on your business, focus on your life.

0:19:37 John Tripolsky: Nothing is going to change and derail everything that you have at the moment. So thank you for harping on that.

0:19:44 Jeff Hampton: Well, yeah, but for harping home, right? That’s right. Well, let me just say this. One of the things Chris said earlier I think is important. If you’re listening to this right now, you already understand the importance of working with a team of advisors who you don’t have to reinvent the wheel and try to figure all this stuff out day after day. So in reality, one of the things to do is to be in touch with your advisors who know the direction of this and are working with investors every day to make sure this is in place. Because one thing that is absolutely true, every federal law, for the most part, particularly one that applies so broadly as this, it is going to change in their enforcement and they’re going to realize they don’t have the manpower to some extent to be able to keep up with some of this. They’re going to want to simplify some of these things as well.

0:20:28 Jeff Hampton: So generally, I expect that we’ll have much more clarity on this, even going into the first quarter, getting into February, into March. And so I’m advising people, don’t just go rush into this right now. Let’s let the dust settle just a little bit. Get some more clarity on actually submitting in compliance. But don’t panic. This is just another one of those things we just got to get in line with. If you’re going to be an investor and you’re going to have llcs or run a business, it’s just another area that the federal government wants to make sure and keep an eye.

0:21:02 John Tripolsky: Awesome. And I look forward to. I know a little teaser out there for anybody who’s listening. Teaching tax flow is going to be working with Mr. Hampton here to create some excellent content on the website. So stay tuned for that because we’ll obviously be providing updates. So if anybody has those questions, you.

0:21:19 John Tripolsky: Can always reach out to us or really just follow us on social media. We pop out some good updates for you.

0:21:25 John Tripolsky: So think of teaching taxable, everybody who’s listening as your CTA, your corporate transparency act news update. And we have the best in the biz for it goes by the name of Chris. Did you have any closing questions for this wise gentleman here before we do wrap up?

0:21:43 Chris Picciurro: No, I just appreciate his time, obviously. And right. We are committed to bringing in the best of the best here. Teaching tax flow. Jeff’s advice is great. Take a breath. But also think about when you’re building your board of directors. Make sure that you don’t make a knee jerk reaction. Make sure that you’re working with a company or someone that one understands. Law two is going to be there for not only just this filing, because this is going to be a recurring event as things change in your organization.

0:22:20 Chris Picciurro: Instead of so don’t look for someone that just put out a fire for you. Look for someone that you’re going to be able to work with in the long term. And as John said, we’re really excited to bring to the teaching taxable community some additional resources for you.

0:22:34 John Tripolsky: Awesome. Well, Jeff, thank you.

0:22:36 John Tripolsky: Thank you as always for joining us.

0:22:37 John Tripolsky: And join us back here on the show.

0:22:39 Jeff Hampton: It’s my pleasure. It’s always fun to hop on this, so I appreciate you bringing me on.

0:22:43 John Tripolsky: All right, well, now you got some homework. You got to go learn how to play the harp.

0:22:47 Jeff Hampton: That’s right.

0:22:47 John Tripolsky: Before we have you back on next time. So have fun with that. And Chris, we’ll let you decide on whatever instrument you want to practice? I’m not quite sure. Maybe I’ll play the air know I’ll master the air guitar and then we’ll get the band together. Until next time everybody. Be sure to follow us on social media, all your main channels. We are on there with teaching tax flow as well as be sure to subscribe to this podcast if you have not done so yet.

0:23:13 John Tripolsky: Drop those reviews in there, send us those questions, send us topic ideas, anything you may have on the tip of your tongue or in mind. But as I always like to close it out, we will see you back here same time, same place next week.

0:23:25 John Tripolsky: Here on the Teaching Taxflow podcast. Hey everyone, John here from the teaching tax flow team. Thank you for hanging out with us here as Jeff, Chris and myself took a deep look at the Corporate Transparency act. So if it was something that you’ve heard about, were worried about, maybe not heard of, hopefully now we solve that for you. And as promised, take a look at.

0:23:52 John Tripolsky: The show notes there.

0:23:53 John Tripolsky: I dropped the link directly in there for you to go to teachingtaxflow.com CTA a CTA for corporate Transparency act check it out. We are ready to make the connection for you directly to a professional with any of those corporate transparency act questions you may have or anything related to asset protection. So that being said, not a whole.

0:24:22 John Tripolsky: Lot more I can even add to.

0:24:23 John Tripolsky: This one wrapping up since we dove directly into that topic today. Jeff, thank you for doing such a great explanation for us and for our audience as well. And as always, we look forward to seeing everybody here next week.

0:24:40 Disclaimer: The content provided is for educational purposes only. We encourage you to seek personalized investment advice from your financial professional. For all tax and legal advice, please consult your CPA or attorney. Investment advisory services are offered through cabin Advisors, a registered investment advisor. Securities are offered through cabin Securities, a registered broker dealer. The content of this podcast does not constitute an offer of securities. Offerings can only be made through an offering memorandum and you should carefully examine the risk factors and other information containing the memorandum.