Legal Thoughts – Episode 3 of the Corporate Transparency Act

COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW | Transcript of Legal Thoughts

Published September 25, 2023
Topic: : “Corporate Transparency Act’s (CTA) Penalties and Intersection with Federal Tax Law”

ATTORNEY INTRODUCTION:

Welcome to Legal Thoughts! My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contracts, litigation and immigration law firm based in Dallas, Texas.

In addition to myself, we have Legal Assistant, Leiliane Godeiro, Law Clerks, Ayesha Jain and Mlaah Singh, and Admin Assistant, Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Law Clerk, Mlaah Singh, will be interviewing me on the important topic of: “Corporate Transparency Act (CTA) Penalties and Intersection with Federal Tax Law”.

For today’s episode, we will focus on the Penalty Provisions of the Corporate Transparency Act and the types of actors who can be assessed the penalties. We will also talk about the IRS and FinCEN intersection in the U.S. Department of Treasury’s pursuit of tax evaders, tax fraudsters, and actors engaged in other financial crimes.

INTERVIEWER INTRODUCTION: 

Hi everyone, my name is Mlaah Singh and I am a Law Clerk at the tax, contracts, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good afternoon, Mr. Jackson. Thank you for agreeing to sit down with me once again as we begin to dig a little deeper into FinCEN’s new nation-wide enforcement of the Beneficial Ownership Information Reporting Requirements of the Corporate Transparency Act with respect to America’s small and medium sized businesses. At the end of  Episode 2 of our CTA Legal Thoughts Podcast series, you warned that the CTA had teeth.  Today, my questions are going to focus on how sharp those teeth really are and the intersection between the work of the Internal Revenue Service and the Financial Crimes Enforcement Network in fighting tax violations and other financial crimes.   Our podcast audience, may have for sure, been sitting on pens and nettles dying to hear more about all this with how you left them hanging in  our Episode 2  about CTA penalty teeth and all.

So anyway, Attorney, today, I will be asking you about the possible consequences if a small and medium sized business is required comply, but  fails to comply, with the new CTA beneficiary ownership information reporting requirements..

Audience, let me start  my questioning of Attorney Jackson like this:   first and foremost,  before we get started let me just give  a summary of the types of questions that I will be trying to get answers to this afternoon.  Hopefully, these areas will answer some of your questions;  we do not address specific concerns in our Legal Thoughts Podcast, blogs or Law Watch Videos on our U-Tube Channel.  Our publications, like these, are general.  If anyone in our audience have specific questions they can call us, write us, or otherwise reach out to us.

(1)who should be concerned about the Corporate Transparency Act’s  Penalty Provisions?

(2)what penalties are permitted under the  Corporate Transparency Act Penalty Provisions? and

(3)how the Corporate Transparency Act’s Penalty Provision relates to penalties permitted for violations of other laws in the United States, say the Internal Revenue Code; for example?

Now that our stage has been set:  Let’s get smarter with our third and final podcast  in our Legal Thoughts podcast  series dealing with  this new  federal law called– the “Corporate Transparency Act.”

Interviewer’s Comments:

Mr. Jackson, let’s start Episode No. 3 of our CTA series of Legal Thoughts podcast, right now.

Attorney, I know you talked a lot about the beneficial ownership information reports and 25% ownership interest and such in Episode 2 a couple of weeks ago.  I want to circle back and dig deeper into the CTA; so this is my first question of today:

QUESTION ONE

Who should be concerned about the Corporate Transparency Act’s Penalty Provisions?

ATTORNEY ANSWER – QUESTION 1

Mlaah I appreciate how your set the stage for our audience and me.  So, I will begin pointing out the actors who should be concerned about the Penalty Provisions in the Corporate Transparency Act.  So let me start with actors on the stage.

First Actor: Domestic and foreign reporting  companies are defined in the CTA as any business entity structured under any State or Tribal business organizational laws.

Second Actor:  Beneficial Owners are defined in the CTA as anyone with 25% or more equity interest in a domestic or foreign reporting company.

Third Actor:  Individuals with Substantial Control of the reporting company.   This term is defined in the CTA to include literally anyone who has substantial control over the direction and decision making in a reporting company.  This includes members of the management team of the reporting company; such as, Chief Financial Officer, Chief Executive Officer, Chief Operating Officer, Treasurer, General Counsel, and President.  The term includes anyone in the reporting company that directs, manage and control the reporting company.  They all are covered under the CTA’s definition of Substantial Control and they all must file individually beneficial ownership information reports with FinCEN on the schedule I explained  in our Legal Thoughts podcast’s Episode 2 a few weeks ago.

Fourth Actor:  Conspirators and Co-Conspirators could be anyone who conspires with others  to violate the CTA.

Fifth Actor:  Anyone who misuse or access FinCEN’s national data base of small & medium sized businesses without authorization or misuse beneficial ownership information reports in violation of the Corporate Transparency Act (CTA).

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Wow all the various actors are on the stage. So, now Attorney, let the curtains open!

Mr. Jackson, please answer my second question as it applies to—

(a) actor number one (this is the reporting company),

(b) actor number two (these are the beneficial owners,

(c)  actor number three (these are  individuals with substantial control, like the CEO of the reporting company),

(d) actor number four (these are conspirators and co-conspirators); and finally,

(e) actor number five (these are those who violate FinCEN’s access and authorization protocols and terms of use of FinCEN’s national data base that holds the secure beneficial ownership information reports of America’s small and medium sized businesses.

Okay Attorney Jackson,  now that you have identified all the actors on the stage;  please answer my second question, which goes like this.

QUESTION TWO 

What penalties are permitted under the  Corporate Transparency Act Penalty Provisions?  Please  explain as clear as possible the potential CTA penalty exposure of the various actors on the stage.  Please help our Legal Thoughts audience to understand how the CTA Penalty Provisions work as it applies to America’s small and medium sized businesses and those who owns and operates them.

ATTORNEY ANSWER – QUESTION 2

That is an excellent way to organize my answer because law is complicated and the Corporate Transparency Act is no different.  It is a sprawling law designed to catch all kinds of actors engaged in various kinds of financial crimes and deception, such as, Covid-19 relief abuse, money laundering, tax fraud, tax evasion and a host of other financial misdeeds through the use of shell companies, structured business entities of all sizes, doing business in deceptive arrangements, such as, deceptive DBAs and a host of other entity fictions spanning across interstate borders and even international borders.

Mlaah, I am saying all this so that our audience will understand that the penalties permitted under the Corporate Transparency Act depends upon the actors, their culpability and the intersection of the CTA with other international, federal, state and local laws.  Violators of the CTA could also be violating other federal laws,  such as, the Internal Revenue Code in particular; but also state and local laws could be violated by actors who violate the CTA.  I am going to limit my discussion in this podcast to penalties under the CTA and possibly the Internal Revenue Code.  But our audience must understand that this is not an exhaustive listing of possible penalties that violators of the CTA may face, nor is it intended to be an exhaustive listing of possible civil and criminal penalties that might be possible under other international, federal, state and local laws for crimes uncovered by investigators and prosecutors using the data collected and stored by FINCEN under the CTA.  Anyone subject to the mandatory reporting requirements in the CTA should consult their legal advisors and counselors when complying and even contemplating and planning to comply with the CTA’s beneficial ownership information reporting requirements.  There are serious civil and criminal consequences for violation of the CTA.

Mlaah, since I have now further set the stage with the seriousness of all this; let me now briefly answer your question as to the actors identified on the stage.

First Actor No 1:  Reporting Company-  reporting company’s who willfully impedes the filing of a beneficial ownership report, causes an inaccurate report to be filed, or otherwise conspire in deceit in filing a beneficial ownership information report to be filed with FinCEN shall be liable to the United States for a civil penalty of not more than $10,000 and may be fined under title 18, United State Code, imprisoned for not more than 3 years, or both upon conviction.  These CTA penalties applies to initial beneficial ownership information reports, corrective reports and the annual beneficial ownership information report.  Again all kinds of other international, state and local laws could be implicated for fraudulent and deceitful behavior related to beneficial ownership information reports.

I am going to take actors numbers 2, 3 and 4 together because the CTA penalty provision states, in part,  that in general, it shall be unlawful for any person to affect interstate or foreign commerce by knowingly providing, or attempting to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph, to FinCEN.

It is also a violation of the CTA penalty provision if anyone willfully fail to provide complete or updated beneficial ownership information to FinCEN.

Further it is a violation of the CTA penalty provision if anyone knowingly disclose the existence of a subpoena, or other law enforcement request under the CTA.

Although I discussed Actor One (the reporting company), separately, every single violation that applies to Actors 2, 3 and 4 also applies to Actor number one– the reporting company.

Note:  the CTA penalty provisions do not permit a penalty for negligent violations of the CTA Beneficial Ownership Information Reporting requirements. There are also certain statutory exempt individuals and entity actors. Minors  or underage actors and several other types of actors are also statutory  exemptions from the CTA’s reporting and penalty provisions.  However, those professionals who advise the actors on the stage are included in the meaning of the CTA’s Penalty Provision term, ‘anyone’ ; such as, accountants, lawyers, consultants or anyone else advising small and medium sized businesses. Creditors of reporting companies are, for the most part,  statutorily  exempt from the CTA reporting requirements, but, not always.

Reasonable Cause Defense Provision:  The CTA Penalty Provision states that the Secretary of the Treasury may waive the civil and criminal penalties of the CTA upon determination that the violation was due to reasonable cause and was not due to willful neglect.  This CTA waiver provision opens the door to lawyer’s  advocacy possibly before FinCEN and even in appropriate judicial forums.

Statute of Limitations:  the CTA has a six year  statute of limitations.  That mean, violators who file a defective report is legally exposed for six years.  Typically, in law, a statute of limitations for violation or prosecution does not begin to run until a suitable report is filed in compliance with an actors obligations under the statute.  There appears to be nothing in the CTA that alters this general rule in federal law.

Mlaah, I know this has been a long answer; but, I am trying to cover a lot of territory and make the Penalty Provisions of the Corporate Transparency Act as simple as possible to our Legal Thoughts podcast audience.  This is a very complicated new federal law.  It is a new law enacted in 2020 and it is being implemented and enforced by FinCEN on the time-line that I explained in our Legal Thoughts Podcast’s Episode 2 a few weeks ago.  Our listeners who missed  Episode 2 in this series of podcasts on the CTA should go back and listen to Episode One and Episode 2.

Let me at this time move on to Actor No. 5  on the stage.  Actor No. 5 are organizations and people who violate the Corporate Transparency Act because they either access FinCEN’s national data base without FinCEN’s approval or they use the beneficial ownership information report in violation of the CTA.

The CTA penalty provision states that the criminal penalties provided under section 5322 apply to misuse and unauthorized disclosure of beneficial ownership information.  Bottom line– this means potentially years in federal prison upon conviction for misuse and unauthorized access to FinCEN’s secure national data base of America’s small and medium sized companies.  I might note here that FinCEN’s national data base is not available to the public.

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Attorney Jackson, no need to apologize for going slowly through the penalty provisions of this complicated new law.  I suspect our Legal Thoughts podcast audience appreciated your professorial approach to explaining this difficult material.

Mr. Jackson thanks for the insights you provided today with respect to the penalties permitted under the new Corporate Transparency Act.

You mentioned earlier in this podcast something about penalties under other international, federal, state and local laws that could be intersecting with the penalty provision of the CTA.  That sounds extremely interesting.  Our audience might be curious about your  comment – you made in passing.  Particularly, I think it would help if you explain how the Corporate Transparency Act relate to the Internal Revenue Service because it is  likely very clear to our podcast audience that the United States Treasury has been vigorously enforcing the federal tax laws forever.  Most individuals and businesses listening to us right now, most likely, have been filing federal tax returns with the IRS for years.  Are there very serious tax offenses correlated to violations of the Corporate Transparency Act?

You have throughout this Legal Thoughts Podcast series dealing with the Corporate Transparency Act stressed how important it is that all small and medium sized business owners in America should know about the Corporate Transparency Act. You said in Episode 2 of our podcast that the CTA is going into effect beginning January 1st, 2024 for certain new businesses and  by  January 1st, 2025 for those businesses already existing on January 1st 2024.   Our listeners who did not hear the first two podcast in this series may want to visit our Legal Thoughts Podcast where ever they listen to their podcasts.

Thank you for your time  this afternoon; Mr. Jackson. If you could clarify what you were saying about the intersection between federal taxes and the Corporate Transparency Act, I think our podcast audience would be grateful.  So let us all get smarter this is my last question in this CTA series.

QUESTION THREE 

Attorney Jackson, does compliance with the Corporate Transparency Act have any affect on compliance with federal tax laws?

ATTORNEY ANSWER – QUESTION 3

Mlaah, thank you for that very astute final question.  Remember what I said in our Legal Thoughts Podcast’s Episode One. The Congressional intent in passing the CTA, and FinCEN’s implementation of Section 6403 of the Corporate Transparency Act (CTA), enacted into law as a part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA), that describe who should file a beneficial ownership information report with FinCEN; the public policies behind enacting and implementing these new laws are to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity committed by actors using corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through use of the U.S. financial system.  In its final implementation rule issued September 30, 2022, FinCEN gives a detailed analysis of the problem that it has been charged to solve.  FinCEN talks about tax evasion, tax fraud and Covid-19 relief violations and violations by shell companies large and small. They even use some recent Department of Justice convictions to explain the problem confronting the nation.   Artificial intelligence enabled data bases and networks are likely to result in exposing financial deceit,  corruption, and illicit activity of businesses of all sizes and structures that has been long hidden from audit examiners, investigators and prosecutors.  The Corporate Transparency Act was passed by Congress to expose financial crimes.   The CTA does not say how far back into the past investigators can go investigating crimes under other statutes and laws.

As I pointed out in Episode One, the reporting companies are not limited to corporations; reporting company is defined in the CTA as any entity structured under any business organization code of any State and of any Tribal laws.  That includes the smallest of the smallest limited liability companies and any other business entity structured under State and Tribal business laws. Also, arguably the definition of reporting company also includes businesses who are “doing business as” and are often referred to as DBAs.  To the extent DBAs have filed organizational or formation documents with, say the Secretary of State, or local, city and county officials they could be required to file beneficial ownership information reports with FinCEN.  DBA’s historically have been used by small and medium sized businesses; and sometimes used to deceive the public, engage in financial deceit and tax evasion.  So the reach and scope of FinCEN’s activities and its national data base may expose violations of many jurisdictional laws, violations of professional ethics codes and uncover long-hidden deceit.  For now, let me just turn to your question about the Corporate Transparency Act’s intersecting with our nations federal tax laws.

Most of our audience has, likely, heard of the Internal Revenue Service.  The Internal Revenue Service is a federal agency of the United States Treasury.  The IRS is charged with the responsibility to enforce the federal tax laws of the United States. The United States’ tax laws are codified in United States Code Chapter 26; we commonly refer to that as the Internal Revenue Code.  The Internal Revenue Service consist, broadly of two divisions.  There is the Civil Division where tax returns are processed from all kinds of taxpayers from around the world who must comply with the Internal Revenue Code.  There is the Criminal Investigation (CI) Division who conducts criminal investigations regarding alleged violations of the Internal Revenue Code.  The Department of Justice pursue prosecution referrals from CID.

So, in answer to your question; the IRS can assess a host of civil penalties ranging from negligence penalties, failure to file penalties, failure to pay penalties, accuracy-related penalties, understatement of income penalties, and many-many-more penalties going all the way up to the 75% civil fraud penalty for certain violations of the Internal Revenue Code.  The work of the Civil Division is likely to touch on the work of FinCEN because tax returns, if any, filed with the IRS by the actors who  FinCEN uncover engaging in illicit activities through their national data base could aid the IRS Civil Division in uncovering tax fraud, tax evasion and other federal tax violations.

As for the Criminal Division, as I have mentioned; this division of the IRS is tasked with investigating tax crimes and making referrals to the Department of Justice for possible prosecution.  Any person who willfully in any manner attempts to defeat, actually defeat, fail to pay, evade any tax under the Internal Revenue Code  could be fined not more than $100,000  (individual violators), and $500,000 (corporation violators).  Violators of the Internal Revenue Code could also be imprisoned for up to five years in addition to the civil fines.

Our audience need to know that violations of the Internal Revenue Code is extremely serious and the IRS has been pursuing tax violators through their Civil Division and Criminal Division for years.  They will have access to FinCEN’s national data base of small and medium sized businesses that is likely to give them a treasure trove of information to pursue tax fraudsters, tax evaders and those cheating the federal tax system.   FinCEN and the IRS has been working together on certain maters for years; take for example, foreign bank account reporting violations.   The IRS is the agency that pursue FBAR violators although FBAR’s are filed with the Financial Crimes Enforcement Network annually on April 15th.  FinCEN is a federal law enforcement agency of the U.S. Department of Treasury.  Our audience needs to know that!  FinCEN investigates all kinds of financial crimes.

Let me end Episode 3 with this—- Beneficial Ownership Information Reporting Requirements must be taken extremely serious by all small and medium sized businesses structured and operating anywhere in the United States.

INTERVIEWER WRAP-UP: Mlaah Singh, Tax Law Clerk

Attorney, thank you for sitting with me today in our third and final Episode of our Legal Thoughts podcast series on the Corporate Transparency Act;  FinCEN’s Beneficial Ownership Reporting Requirements; and the Penalty Provisions of the CTA with respect to several different actors. I hope our audience  now understands what you meant when you said in Legal Thoughts Podcast, Episode 2; a few weeks ago, that the Corporate Transparency Act has teeth.  Today, you have also clearly shown how federal tax enforcement by the Internal Revenue Service intersects with the investigations of the Financial Crimes Enforcement Network and the beneficial ownership information reports that certain small and medium sized businesses will be required to begin filing after January 1st, 2024.  That is only a few months from now, Attorney!

Our listeners who want to hear more podcast like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast.  Everybody take care!  And come back in about two weeks, for more taxation, business structuring, contracts litigation and immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.

English callers:  214-599-0431 | Spanish callers:  214-599-0432 |Portuguese callers: 214-272-3100

ATTORNEY’S CLOSING REMARKS:

This is the end of “LEGAL THOUGHTS” for now

Thank you for giving us your ear today as we explained the Corporate Transparency Act’s (CTA) Penalty Provision and the intersection between the Internal Revenue Service and Financial Crimes Enforcement Network’s efforts to combat illicit activities, corruption, tax fraud and tax evasion.  Our listeners would like to read our tax blogs (we have published many-many tax blogs on various topics over the years), visit our law firm’s website at www.cjacksonlaw.com to access our free blogs.   Our listeners should stay tune for future Legal Thoughts podcast on various topics in our practice areas.

If you want to see or hear more taxation, business structuring and contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C.  Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.

Stay tuned!  We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, contracts, litigation and immigration.  Until next time, take care.

Legal Thoughts – Episode 2 of the Corporate Transparency Act

COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW | Transcript of Legal Thoughts

Published September 11, 2023
Topic: “FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCen), U.S. Treasury’s Beneficial Ownership Information Reporting Requirements”

ATTORNEY INTRODUCTION:

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contracts, litigation and immigration law firm based in Dallas, Texas.

In addition to myself, we have a Legal Assistant, Leiliane Godeiro, Law Clerks, Ayesha Jain and Mlaah Singh, and Admin Assistants, Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Law Clerk, Mlaah Singh, will be interviewing me on the important topic of: “Beneficial Ownership Information Reports and American Small & Medium Size Business’ Obligations Under the Corporate Transparency Act”. Episode No 2 is a continuation of our Legal Thoughts Podcast Series on Corporate Transparency Act.Today’s episode, we will focus on Beneficial Ownership Information Reports; and, what small and medium size business owners must comply with mandatory reporting requirements.

INTERVIEWER INTRODUCTION:

Hi everyone, my name is Mlaah Singh and I am a Law Clerk at the tax, contracts, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good afternoon Attorney. Thank you for agreeing to sit with me as we continue our discussion of this hot business law topic! Now, let’s begin our second podcast in our Series dealing with The Financial Crimes Enforcement Network’s enforcement of the Corporate Transparency Act as it relates to certain small and medium size American businesses as you explained in excruciating detail a few weeks ago in our first episode of this series of our law firm’s Legal Thoughts Podcasts. Our listeners who missed Episode One should listen to the first episode published a  weeks ago to fully understand this Second Episode; since this Second Episode is a continuation and builds on what Mr. Jackson explained in Episode One about the Corporate Transparency Act and the Anti-Money Laundering Act of 2020.

QUESTION ONE

Attorney Jackson during our last conversation regarding the Corporate Transparency Act was certainly enlightening and somewhat frightening as well. I think the small and medium sized business owners listening to our Legal Thoughts Podcast might have numerous unanswered

Questions. Mr. Jackson, you made crystal clear in your comments in Episode One that a lot of small and medium sized businesses are expected to be impacted by the Corporate Transparency Act. A big question that I have to begin with today is this one: Attorney, exactly how will affected owners of small and medium size companies report their ownership interest?

ATTORNEY ANSWER – QUESTION 1

That is certainly a good question Mlaah to start our Episode 2; and, it is one that will help listeners decipher if they are part of this jurisdiction’s demographic obligated to comply with the Corporate Transparency Act. The short answer is that small and medium size business owners impacted by the Corporate Transparency Act reporting requirements will identify themselves by filing timely Beneficial Ownership Information Reports with the Financial Crimes Enforcement Network which is an agency within the U.S. Department of the Treasury. FinCEN is not the IRS which is also an agency of the Department of Treasury that our audience are likely to be more familiar with when complying with the U.S. States federal tax laws.

Let me try to explain this in more details in simple terms. Mlaah, if an individual’s ownership interest in a required reporting company is less than 25%, that individual would be exempt from the obligation to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network. On the other hand, if an individual’s ownership interest in a required reporting company is 25% or greater, that individual would have an obligation to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network. Beneficial Owner; therefore, means an individual who owns 25% or more equity interest in a reporting company. The term “reporting company” under the CTA means a business entity structured under any State or Tribal business structuring laws. Such as, business filing articles of organization under the Business Organization Code in Texas and filed with the Texas Secretary of State’s Office; or in other States, businesses filing organizational documents under a similar set of structuring laws. It is extremely important for our podcast audience to understand that each individual within a particular reporting company must file individually a Beneficial Ownership Information Report with FinCEN if they meet the 25% reporting threshold. The BOIR’s are not filed by the entity or at the reporting entity level. 

The CTA places the mandatory reporting obligation directly on the individual owners that meets the ownership interest thresholds that I mentioned a short while ago. Repeat, the individual that owns 25% or more equity interest in the reporting company must comply with your reporting obligations under the Corporate Transparency Act. This is a micro- individual reporting of interest requirement; and it turns the Financial Crimes Enforcement Network’s national database into a concentrated network that maps out any and all ‘substantial control’ of small and medium size business enterprises throughout the United States. As I stressed in Episode One, and again now; the term reporting companies include any business entity structured under any State or Tribal business structuring laws, such as corporations, limited liability companies, and other type of entities.

My dear podcast listener; corporate transparency is not limited to businesses structured as corporations. These reporting requirements apply to mom and pop limited liability companies for example. They were not exempted by Congress or FinCEN in enacting the rules to enforce the Corporate Transparency Act. The CTA Beneficial Ownership Information Reporting requirements apply to the smallest required reporting entities. They are not exempt.

Mlaah, as I pointed out in Episode One, FinCEN’s fundamental objective is to classify all substantial owners to fully enact the intent of Congress in enacting the Anti-Money

Laundering Act of 2020 to combat money laundering, tax evasion, tax fraud, terrorist financing, corruption and other nefarious financial crimes committed by American small and medium sized businesses. The Corporate Transparency Act is a part of the Anti-Money Laundering Act of 2020. FinCEN is charged with enforcing the CTA. Shining sunlight on American small and medium sized businesses is what the CTA is all about. This FinCEN national database is designed to show FinCEN, the IRS and others who substantially control American business enterprises.

There are ongoing discussions with respect to access controls, constitutional, and privacy issues associated with FinCEN’s national database. The fundamental policies in Congress enacting these laws and giving the U.S. Department of Treasury these broad enforcement powers is to expose those who own and substantially control American small and medium sized businesses to FinCEN, the IRS and other law enforcement agencies (domestic and foreign) for the good of the United States economy, where American citizens have lost job opportunities, business secrets and know-how and even many Americans have been priced out of real estate markets by concealed purchasers all over the country; for the good of our national security by detecting and preventing illicit financial activity where businesses and owners have concealed their real identities and hidden their criminal activity by using shell business entities and used deception for years in anonymous activity, such as, hidden ownership structuring schemes and like behavior in many industries throughout the country.

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Thank you Attorney. This insight that you shared with our Legal Thoughts podcast audience will definitely help business owners make timely decisions to protect their company under FinCEN’s new regulations. Having this data across businesses within the spectrum that you just mentioned will indeed likely protect this country from small and medium sized businesses engaged in tax fraud, terrorist financing, corruption and other types of activities that diminish economic opportunities and damage our economy and our country more expansively. Who owns American small businesses will now be securely held within the U.S. Treasury’s national database. Now that our audience understands who is impacted by this regulation and why this Act is designed to shine bright lights on business ownership in our country; my next question is this one.

QUESTION TWO 

Mr. Jackson, could you please explain in detail what information exactly must be disclosed in a Beneficial Ownership Information Report? What information about these small and medium sized business owners stored in FinCEN’s national database?

ATTORNEY ANSWER – QUESTION TWO

That is an astute question because the types of information required to be disclosed by small and medium sized American business owners and the information stored in FinCEN’s national database goes to heart of whether FinCEN can accomplish its mandate under the Anti-Money

Laundering Act of 2020 to ferret out money launderers, tax fraud artists, tax evaders and others allegedly engaged in financial crimes. It is important for podcast audience to understand that there really isn’t too much information required to be disclosed in a Beneficial Ownership Information Report; but the value of that information for investigatory purposes by FinCEN, the Internal Revenue Service and others could be invaluable in investigating tax fraud, tax evasion and all of the other crimes that law enforcement is trying to expose and uncover. This is a list of the required information that must be reported by Beneficial Owners of Small and Medium Sized American Business impacted by the CTA:

1. The Beneficial Owners Legal Name;
2. The Beneficial Owner’s Date of Birth;
3. The Beneficial Owner’s Residential Address Address;
4. The Reporting Company’s Business Address; and
5. Government Issued Photo Identification Card, such as, State Driver’;s License, Passport, or other valid identification document.

This document must be uploaded to FinCEN along with the Beneficial Ownership Information Report. Repeat: this type of information, although not extensive, is being collected by FinCEN to carry out its enforcement obligations under the Corporate Transparency Act relating to its efforts to prevent money laundering, tax fraud, tax evasion, terrorist financing and other financial crimes. The required information on the substantial ownership of small and medium sized businesses will be stored on the Financial Crimes Enforcement Network’s national database. Once the impacted small and medium sized business owner complies by giving FinCEN all of the information that I have just mentioned by sending it directly to FinCEN, the impacted small and medium sized business owner will have successfully fulfilled their obligations under the Corporate Transparency Act. I think I should mention here however that FinCEN could have questions concerning the submissions and request additional information or otherwise investigate based on the submissions.

These CTA reporting requirements become effective for business structured after January 1, 2024 on January 1, 2024 and the impacted business owners are required to file their Beneficial Ownership Information Reports within 30 days of their Article of Organization is approved

by the applicable State or Tribal government agency. These CTA reporting requirements become effective for all other impacted businesses on January 1, 2025. In other words, businesses existing or structured before January 1, 2024 have another year to comply. Any required reporting entity and its beneficial owners should make appropriate plans to begin complying with the Beneficial Ownership Information Report requirements right away since the drop deadline for all impacted businesses is January 1st , 2025. This gives beneficial owners in businesses started before January 1, 2024 from around the nation exactly one calendar year to counsel with their legal counselors and advocates to prepare and comply with their obligations under the Corporate Transparency Act.​

Finally Mlaah, in answering your question; I think it is very important for me to point out to our Legal Thoughts podcast audience that; although, these Beneficial Ownership Information Reports are to be held within FinCEN’s secure national database, it is extremely important, for everyone to understand who will have access to this information and the procedures or safeguards in place to protect this information. Now these access protocols are not absolutely clear at this time. But it appears that there is a limited number of governmental corporations that may be granted access to specific information by sending an access request to the Financial Crimes Enforcement Network explaining the justification for their request to search FinCEN’s national database of owners of small to medium sized businesses. According to FinCEN’s final rules implementing the CTA; FinCEN will manually reject and accept requests through their

Beneficial Ownership IT system. The rules go on to say that business owners’ information will be securely held and will only be distributed upon consent from both the requestor and the company for their BOI’s to be shared externally.

The Final Rule implementing the CTA says that the corporations and the governmental agencies able to access Beneficial Ownership

Information Reports upon consent are as follows.

– 1. U.S., Federal, State, Local, and Tribal governmental agencies

– 2. Foreign law enforcement agencies, judges, prosecutors, and central authorities

– 3. Financial institutions who request BOIs with the justification of complying with their obligations under the Bank Secrecy Act and other statutes and laws regarding “know your customer banking laws” and the bank’s consumer due diligence requirements. This

includes actions required of these financial institutions under law.

– 4. Federal functional regulators and appropriate regulatory agencies acting in supervisory capacity accessing the financial condition of financial institutions

– 5. Finally, the U.S. Department of Treasury; specifically FinCEN which is the Financial Crimes Enforcement Network and the IRS which is the Internal Revenue Service (the agency charged with the responsibility to enforce America’s federal tax laws).

Finally, FinCEN’s Final Rule implementing the Corporate Transparency Act states that information may be extracted from FinCEN’s national database only for investigative purposes and within the bounds of law enforcement. Beneficial owners may still trust the security of this system as information must be formally and officially approved by the Financial Crimes Enforcement Network before release to the organizations, agencies and others.

 

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Thank you for that insight Mr. Jackson. The implementation of the Corporate Transparency Act seems to be extremely comprehensive and should improve the United States government in its ability to detect tax fraud, tax evasion and other financial crimes around America. Our viewers, the Attorney, might be wondering what kind of punishment power are given to FinCEN under the Corporate Transparency Act. 

QUESTION THREE

Everyone might be wondering what kind of penalties can be imposed on business owners who refuse to comply or file these beneficial ownership information reports? In the third podcast in our series, are you planning to talk about punishment under the CTA? Can you tell our Legal Thoughts Podcast audience what they can expect from our next couple of podcasts in this CTA podcast series (say podcast three and four; what topics will you talk about as it relates to the implementation of the CTA by FinCEN)?

ATTORNEY ANSWER – QUESTION THREE

Okay Mlaah, thank you for teeing up our next Legal Thoughts podcast in this series, which is Episode 3 where I intend to focus on the civil and criminal penalties that can be assessed against violators of the Corporate Transparency Act’s beneficial owner reporting requirements. So, your final question is an excellent question.

Mlaah, given the fact that there are many aspects of this jurisdiction that will impact a large demographic in America I will attempt to answer the following types of questions in Episode 3 in this CTA series of Legal Thoughts:

1. What are the penalties for non-willful violations of the Corporate Transparency Act?
2. What are the penalties for willful violations of the Corporate Transparency Act?
3. What is the range of monetary penalties allowable under the Corporate Transparency Act?
4. What is the range of criminal penalties which could lead to federal jail time for violators of the CTA upon conviction?

For now let me make it clear to our audience, the Corporate Transparency Act has teeth. Small and medium sized businesses impacted by the CTA could incur serious civil penalties and several years in federal prison for failure to file timely Beneficial Owner Information Reports with the Financial Crimes Network. Our audience should stay tuned to future publications of our law firm’s Legal Thoughts Podcast.

INTERVIEWER WRAP-UP: Mlaah Singh, Tax Law Clerk

Attorney, thank you for sitting with me today in our first podcast on the Corporate Transparency Act and FinCEN’s Beneficial Information Owner Reporting Requirements We plan to record and publish in a few weeks about three to four more podcasts in this series on the Corporate Transparency Act where Mr. Jackson intends to shed more light on the impacts of the CTA on certain small and medium sized business owners.

Our listeners who want to hear more podcasts like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, business structuring, contracts litigation and Immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.

English callers: 214-599-0431 | Spanish callers: 214-599-0432 | Portuguese callers: 214-272-3100

ATTORNEY’S CLOSING REMARKS:

I want to thank our Legal Thoughts Podcast audience for giving us your attention today as our Law Firm’s Law Clerk, Mlaah Singh, interviewed me with respect to the Financial Crimes Enforcement Network’s Beneficial Owner Information Reports and its impact on certain small and medium sized business owner’s obligations under the Corporate Transparency Act. We intend to talk more about the FinCEN implementation of the CTA in a couple more podcasts in the next few weeks or so. Our listeners should stay tune for future podcast in this series; definitely, our listeners who run their own businesses should tune into Episode 3 where I go through the possible civil and criminal penalties imposed on violators of the Corporate Transparency Act’s Beneficial Ownership Information Reporting requirements!

If you want to see or hear more taxation, business structuring and contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.

Stay tuned! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. 

Until next time, take care.