- Hey guys, in this video I wanna talk
about the Corporate Transparency Act
that was recently passed
as part of the National Defense Authorization Act.
You know, they just kinda buried this provision
in a defense bill.
It never ceases to amaze me how Congress works
when it comes to passing bills.
You think they're about one thing,
and they always seem
to put so many other little clauses in there.
Kinda reminds me of an insurance contract, right?
Your contract with your insurance company,
you think you have X
and you find out you also have Y and Z included,
but no one really told you about it
unless you read the fine print, so what is all the concern
about the Corporate Transparency Act,
and why are you seeing now these headlines
that are out there
in various news publications discussing the implications
of this?
Well, it's something that actually came about last year
and passed Congress, but had not been signed into law,
and what it's designed to,
I guess, address or fight is what they consider
to be money laundering.
And so how is this taking place
and where is this perceived issue?
Well, Congress perceives
that there are a number of states out there,
there's actually 16 states
that do not collect information on individuals
when you set up a corporation or limited liability company
in that state.
Now if you watch my videos,
I talk about Delaware and Wyoming
as being two great states because you can have anonymity.
Now, the thinking here is that people come in,
they set up these what they call shell corporations
in Wyoming or Delaware, and then they proceed to engage
in transactions and either not report their income
or they money launder drug money
or ill-gotten gains here in the United States
because there's no collection of information
on who is actually behind these entities.
In fact, I've dealt with the IRS on this
on occasion before over Nevada entities.
Their concern was that they didn't know
who was actually the owner of the company,
and my, we actually brought up to them the fact
that whenever you set up an entity like a corporation
or an LLC, in order to do banking,
you have to acquire an EIN number.
Now in order to acquire that EIN number,
what do you have to do?
You have to submit who is the responsible party
for that entity to the IRS,
provide them with their Social Security number
to attain an EIN,
so you actually give them the information already.
So if you're wondering, how is this going to affect me,
just know this, as I get into it,
you've already provided this information.
If you set up a business entity or we set it up for you,
when we set up that entity,
we let the federal government know
who is actually the responsible party
by providing them that information,
so even though it's not listed
on the Secretary of State's website, the IRS,
the federal government still has it.
But here's something interesting to note.
Here in our conversations with the Internal Revenue Service
on providing this information,
they actually told us they didn't have a way to pull it,
that they could not reference that information themselves,
and they needed another person to provide that to them,
namely the state or the attorneys
that set up the information, but I found that to be odd
that they couldn't actually delve into their own database
and run a simple query search to determine this,
but ay, we know government's efficient, don't we?
So what should we expect?
Anyways, back onto this bill.
So here's what they're thinking,
that by passing this Corporate Transparency Act,
what it's going to do then is discourage criminal behavior,
to prevent people from laundering money.
Now, if you think about it, most rational people say,
what laws have we ever passed
that actually stops behavior like this?
I mean, if you speed, do you get a ticket?
Yes, and people speed all the time,
and we have laws against speeding,
but that doesn't stop people from speeding.
And you could go on and on and make these same analogies.
So the well-intentioned people behind this bill
thought this would be a great idea
to prevent individuals from setting up corporations
and not disclosing who the owners are,
if we make them provide the owners' information
to another government database, FinCEN.
So what they wanna require
is that you're going to have to provide information
to FinCEN, and what they're looking for
is if you set up a corporation, a limited liability company,
or what they added in the final bill
is that another business entity,
a similar business entity organized under state law
as you can see here, and really what this comes down to
is I think what they were trying to address
is the fact that people can create trust, business trusts,
and they can get around this.
Now, if you're not setting up a business trust,
you could set up another type of trust
that's not a business trust or a statutory trust,
like for example a Delaware statutory trust,
and still technically not have to disclose the information,
so the drafting language here
in Part A I think is kinda weak.
If that's what they're going to,
people will just find a way around it,
but if they're using business entities
such as limited partnerships, statutory trusts, foundations,
they're, in my interpretation or reading of this,
are probably gonna have to provide the owners' information,
and so who are they looking for?
They're looking for anybody
that has substantial control over the business entity.
You have to provide that information
to the federal government, or those individuals
that own 25% or more of the company.
That information's gonna have to be provided as well.
So what information are they looking for?
Well they're gonna be looking for your name,
your Social Security number,
and I believe a copy of your driver's license
or a copy of a passport,
and that's gonna have to be updated each and every year.
Now failure to do this will result in penalties
of up to $10,000 and possibly two years in jail.
So the thinking is is that by requiring individuals
to supply this information, it will cut down
on any types of tax evasion through the use
of what they term shell companies
or money laundering activities.
Now, let's face it.
If you're already a criminal
and you're gonna engage in criminal activity,
how is this going to stop?
You think now they're gonna say,
oh, I have to disclose this information
and I don't want them to know that I'm doing it?
Of course not.
They'll just use someone else,
some shill to step into their place
to provide their information or maybe they'll use false ID,
buy somethin' from China.
You can get plenty of fake IDs over there
and supply that information to the federal government.
Who knows?
But will it actually cut down on it?
Probably not.
Just another meaning, well, I wouldn't say meaningless,
but well-intentioned law
that probably won't have any real impact
other than to affect small business owners like ourselves
who have to remember now here is one other thing
that I have to do every year
to keep my business entity in compliance.
'Cause the last thing I want
is the federal government coming after me
and slapping a $10,000 fine on me
because I forgot to send in one form letting them know,
hey, I already told you I file a tax return for it
and I own this company 100%,
you have it with the IRS as well when I applied
for my EIN number,
but let's give it to another governmental agency
because your databases can't talk to one another.
You're incapable of mining this information
and figuring it out on your own,
so let me just keep screaming
from the top of a hill who actually owns this company,
while the criminals continue on
with their nefarious activity
because no law is really going to stop this.
Now there are some other reasons
why people have advocated for this,
and if you watch my video on setting up LLCs in New York
when New York recently passed a law requiring you
to disclose the owners,
this is the concern that they have is that there's a lack
of affordable housing,
which I found to be kinda interesting the way they take this
and stretch it out.
Some publications have indicated that the reasoning
behind creating this Corporate Transparency Act
is so they can find out who the actual owners are
of these companies that are buying up large swaths
of real estate, expensive real estate, in certain cities,
San Francisco, New York,
and then they're not moving into these properties,
they're letting them sit vacant.
Now what the argument is is, as I understand it,
is that by allowing companies,
shell companies that have anonymous owners
to buy up this property and park their money here
in the United States,
it creates a lack of affordable housing.
Well, I don't think a penthouse apartment
in New York would qualify
as affordable housing regardless who bought it.
But they said that that puts pressure
on the market in general to drive up prices,
because that money's pouring in.
Now, the fact that you don't know who the owners are
or you do know who the owners are,
I don't see how that's going to stop this from occurring,
because the information that is gonna be collected by FinCEN
is not actually available to the public.
So yes, they're gonna collect this information,
no, you're not gonna know who owns it anyway,
so if you wanted to engage in a public pressure campaign
against other individuals who are just buying up real estate
and paying inflated prices for it,
I mean, come on, it's their money,
why can't they do what they want with it,
then how is this going to help you
to stop that type of activity if affordable housing
is your number one concern in these specific locations?
There're probably better ways
to address it like they have tried to do in certain places
by requiring developers put in so much affordable housing,
or in their units have so many units dedicated
to affordable housing
when they have a certain type of property that they built
and they're going to lease it out.
But, again, I guess it's, comes down to this.
The more information we can collect on individuals,
somehow we feel that this is going to help prevent crime,
and at the end of the day, it'll probably,
in my opinion, have a less-than-meaningful impact
on the type of activity they're trying to prevent,
but who knows, we'll see what happens.
Hopefully it does, if it,
there is a lot of crime like that taking place,
stop it, but the, for the average individual like ourselves
who are setting up LLCs for real estate,
corporations for our small business,
it's just another hoop you have to jump through.
Information that you supply to the federal government
on an annual basis, it's gonna be held, as they say,
strictly confidential, unless someone hacks the database,
and that information is not gonna be released
to the general public.
You're just gonna have to make sure
you're doin' it every year.
That's why it's good to have a registered agent.
As, at Anderson here we serve as registered agents
for 20, 30, 40,000,
I forget how many companies we now work with,
and we keep that in for,
or that's something that we remind our clients of
on an annual basis in addition to their annual filing.
So when you're considering this,
you don't wanna run afoul of this law for sure
because of the penalties, and I'm sure
they're probably gonna give you one or two passes
if you do make a mistake and you forget to file it
and they'll warn you you need to file it,
but it's, again, it's something,
you don't wanna get on anybody's radar screen,
so by using a professional service to remind you
of all the additional filings now that you have to do
on an annual basis to maintain your entity,
is probably a good idea.
There's a lot of companies out there,
thousands of companies that offer that type of service
for you business entity, so I would probably suggest
that you keep that in mind.
Hey guys, if you've liked this video, give me a like,
and if you haven't subscribed to my channel,
be sure to subscribe to it
'cause I got a lot of great content coming out this year.
We've got, with the change of the administration,
what's gonna happen there with the tax side,
you're gonna wanna know that,
especially if you're a real estate investor
or small business owner.
So take it from that, Corporate Transparency Act,
not that big a deal at the end of the day,
but you need to know about it
because they will be releasing guidance
on what has to be reported on these business entities.
And oh, by the way, if you have an existing business entity,
don't fret.
As I understand it right now, you have two years
before you have to start reporting that information,
but on the new ones going forwards,
well, we're gonna have to come up
with that reporting right away.
All right everyone, take care.
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