What's up guys.
It's Clint Coons here.
And in this video I want to follow up on the new Corporate Transparency Act.
They finally released the final regulations.
And if you know
you've caught my other video, I talked about the proposed regulations
and what that means to you as someone who owns a limited liability company,
corporation or other business entity about the disclosures.
Okay.
So if you're not up on this, the Corporate Transparency Act was passed by Congress
to ensure that the government is collecting information
on every business owner in the United States.
It sets up a business entity.
Now, the intent of it, as it stated, is to ensure that
financial crimes, money laundering, things like that are not taking place.
And the only way the government can ensure that that activity
is not taking place or give themselves a leg up to prevent it,
is to require you to disclose information about your entity.
And so what does that mean?
Well, this corporate transparency act as an act,
it requires that any person who owns a limited liability company, corporation,
any entity that is registered with what the state
with with a tribal organization,
must provide to the government certain information
about the individual owners and the people
who exercised control over that company.
Now, the Corporate Transparency Act, what does that mean
to us as individuals who have set up LLC for a real estate investing?
Maybe you got a corporation, you're running your business.
What's going to be required that you have to disclose?
Well, here's what it comes down to.
You have to disclose any beneficial owners that own at least 25% of the company.
Now, when you disclose that, what's going to be required is that you provide
not only the name, date of birth, physical address, your home address.
You're going to have to provide that as well.
You can't use a business address.
You're also going to need to send in a photocopy copy of either
your driver's license, a state issued ID card or a passport.
And now none of these can be expired.
They have to be current.
So this information has to be provided on any beneficial owner
owning more than or 25% or more of the business.
Now, what's tricky here is that it also takes into consideration
the fact that you may own a business through a business.
So let me just give you an idea of what I'm referring to.
So let's assume that you have a limited liability company set up right here.
Some of the things I talk about in my videos
all the time is that you would set up an LLC
for your real estate as follows And then you have that LLC owned
by a Wyoming limited liability company down here, and you and your wife
actually own this LLC, the Wyoming LLC.
Now under the Corp KTA, I'll just refer to it as that under the CTA,
of course, both of these entities, since they're registered
with the Secretary of State, must report.
So the way you interpret this is that this entity here is owned 100% by this LLC.
However, even though this LLC is the 100%
beneficial owner, the true owners are these individuals down here.
So under the CTA for this red box here, you would provide information
on these two individuals as the indirect owners,
meaning that you own this company, which is essentially owns this company up here.
So you would send in your information for this red box as the beneficial owners.
Now for the blue box, you would have to do the exact same thing.
So you would send in the exact same information for the blue box as well.
So again, photocopied date of birth name and physical address.
All right.
So not only do you have to provide information
about the beneficial owners, people owning more than 25%, you also have
to provide information on any individual that exercises substantial control.
And so this was a lot of there's a lot of controversy about that or questions.
And and they took Treasury took questions and comments
about the idea of substantial control, what that meant.
And they did clarify it to some extent.
And it really boils down to this.
Anyone that is in control of this organization
that can decide how the organization is being run, you have to disclose
that information as well as the beneficial owner.
So essentially in my example right here, you're going to get listed twice.
You're going to be listed
as the person who exercises substantial control over this red box.
Now, how do you exercise that substantial control?
Well, you control the blue box, which controls the red box.
So they would consider that as being under your control, which it is.
And same with the blue box, your set up of this LLC.
Let's say you're set up as its manager, then you would have to again
disclose yourself is exercising substantial control.
So you see it does get a little complicated on for most individuals.
It's going to be straightforward though, in the fact
that when you look at your entities, you own control of these things.
Therefore you have to provide your information.
Now, if I set this blue box up as follows
I own
80% of it and my wife owns 20%.
Well, in that case, I wouldn't have to disclose her information
with respect to this red box up here.
But if she's listed as a manager of this LLC, her information would be disclosed
as someone who exercises substantial control over the blue box,
which in turn could imply that her information would need to be
listed up here at the red box as a person exercising substantial control.
So when you send in the the annual report, which I'll get to in a minute, about
when that's due, you would have this owners a red box.
You would have this individual control
of red box.
You would show this.
All right. So she still going to get picked up?
She gets picked up under the control
side, not necessarily as the owner because of our structuring.
Now, if you think when you
when you hear this, when I see that it's 25% or more, you're going, oh, Clint,
I can I don't want to turn my information over to the federal government.
I can avoid that.
By the way, I structure my entity.
So what you possibly might be thinking, you're going to set up an LLC as follows
and you're going to ensure that you don't own 25% of this this blue box up here.
So you'll create a number of other types of structures.
Maybe you have another LLC here, possibly create a trust over here,
another entity over here, another trust, and you'll, you'll split up the ownership
among all these entities and maybe you bring in a spouse right here.
And so that and then one more will bring in a kid or a child.
We'll say, Hey, I don't own 25% because this entity owns 20%,
this person owns 20, this person owns 20, 20 and 20.
Well,
even though you might
think you're working around the regulations, it's
not going to work for you because they took this into consideration
in the fact that you have indirect ownership of this blue box
through these various entities that you control
or require that you disclose yourself.
And in fact, if you did that, the idea or it may be that individuals
who are looking if they did look at your entity,
may wonder, what is this person trying to hide?
Why are they going to such great lengths to protect their identity?
So if you use your children who are minor children under the age of 18,
then you have to submit information about the guardian of that child
or the parent of that child, what their information
would have to be submitted if if a child was an owner
in one of your limited liability companies, other things that came to mind,
what is thinking about this?
A lot of people use self-directed IRAs
and you set up an LLC that's owned 100% by your IRA.
Well, again, under the same rationale, because it is your IRA, which is a trust,
you were essentially treated
as the beneficial owner for reporting purposes of this LLC.
So you would list your name here as the beneficial owner
annual list yourself here as the person who exercises substantial control.
Because in most of these structures,
when we you set up LLC that are held by self-directed IRAs,
you're going to be listed as the manager of that limited liability company.
So it doesn't really matter.
You know,
you can try to get creative and I know people will throw into the comments.
Well, Clint, what if I do something like this?
I set up an LLC and I have a land
trust over here and it owns 100% of it.
I'm the trustee of the land trust.
So then I wouldn't have to report.
No, because your Land Trust owns the LLC.
You own the land.
You're the beneficiary of the land trust. You will be reporting
the the thing to keep in mind,
if you set up trusts or you have general partnerships,
these types of structures that I just described, they're not filed anywhere.
So so those structures do not have to report the only entities
that would need to report they would be a corporation.
So if you set up an EA, that would need to report.
So in that case you will report on the shareholders 25%
or more shareholders, and you would report on the president and potentially vice
president of that company.
If there's anybody else that has substantial control,
you probably have to disclose their information as well.
Limited liability company would be something you'd be reporting on
if you set up a limited partnership, a statutory trust.
I Wyoming Statutory Trust.
Again, I'm listing out entities that are registered with the state so
all of these entities are going to be required to report
so when do you have to start reporting?
Well, this was a question and a lot of people thought
that it would begin this year.
However, in the final regulations, the reporting period
does not start until 2024.
So this is when you begin reporting.
So next year, you don't have to worry about it.
So any entity that you've created prior to 2024,
you will have to begin your reporting on that entity.
And again, this is annual every year
you're going to have to do this, you have to begin it in 2024.
Now you have one year to report.
So essentially you have until 2025
to file this report on your entity.
And each year you're required to file an annual report on that entity.
Now, if during the year there are any changes in substantial
control or ownership, you are required within 30 days to update your reporting.
So for example,
if I started with a limited liability company here
that was owned by a Wyoming LLC as follows
And then I decided to bring in a joint venture partner
on this LLC, and they got a 30% interest
that would require that I update the FinCEN with the new owner
or this entity within 30 days of this person being brought on.
So you would have to collect information from them.
You have to collect information.
As I stated, you have to get a copy of their passport, valid
driver's license, state issued ID, you need their physical address
and you need their date of birth and you need their name.
So all that would have to be sent in with regards to this entity.
Now, the other thing you have to be recognize as well
is that the person who sets up the entity that files the entity with the state
to get it going, they also have to report their information.
So here at Anderson, you know, we set up limited
liability companies and corporations for our clients.
And so starting in 2024, for every entity we set up here at Anderson,
we have to disclose on that reporting, the initial
reporting for this entity, the person who does the filing.
So if my secretary, Deborah, for instance, filed a limited liability company
for one of my clients for their real estate,
then I would not only provide my clients information,
I have to collect all that from my client as I just went through.
But I also have to provide it for her as well.
After sending a copy of her driver's license, her date of birth,
her physical address and name and send that in.
And again, if she moves, I have to update
the the FinCEN as well.
So that's going to be required.
So if you set up your own entities,
not only you have to report on your beneficial ownership,
you also report that you're the one that set it up.
So they so they collect information there.
Now, this goes into effect in 2024.
So any new entities
that are created from January 1st, 2024, and on those entities that get set up,
you're going to have 30 days to provide that initial report.
So existing entities have one year
after the law goes into effect in 2024, but new entities that are created
after that period have 30 days to to make their initial report.
And as I stated, you're going to have to update it now
if you're setting up a lot of business entities or, you know,
you already have existing business entities
and you're thinking, you know what, this is going to be really burdensome.
I get it.
Who the heck wants to keep sending in copies of their photo
ID and address and everything to to to FinCEN on an annual basis?
Well, there is some relief there.
You can apply for a number, identification number
that you would receive this number again,
you would send in the required information that I just described.
They will issue you a number.
Now, they have not yet finalized what that's going to look like, the form
and how to obtain that number.
They will be doing that, I assume, within the next year.
But once you obtain this number, then you're no longer going to be required
to send in all of that information.
So say here at Anderson, since we set up a lot of entities for our clients,
we're going to obtain those numbers for those people who do the filings.
I'm also required
to have one of the partners at Anderson send in their information as well.
So each of the partners will have FinCEN numbers
so that on an annual basis, when we're sending in all these reports
for our clients, we won't have to keep getting photocopies
from from the partner or for that from the employee who did all the violence.
We'll just provide that FinCEN number and we'll be good to go.
Now, just like the entities, if anything changes, you are required.
If you have been issued a number to submit
a updated report associated with that number.
So they have your current information on file.
So I would encourage you if, you know, starting next year again,
I'll put out another video when they release how to obtain a FinCEN
so you can go out there and get your number
if you have existing business entities, I would highly encourage you to do that
to avoid having to go through the hassle of supplying
all of that information on an annual basis with your report.
And, you know, it really remains to be seen
how effective this law is going to be.
Just like anything that you know, the government seems to think
that if you pass a law, you're going to curtail certain types of activity.
Well, if that's the case, I guess we would have no longer any
thefts and murders and speeds, speeding tickets being issued in this country
because there's all laws to prevent that right or criminalize it.
But it hasn't stopped it.
So I really see this more as an additional burden that's going to be imposed
upon individuals who are law abiding business owners.
And it's a way for the government to collect the information on you.
Now, one question that keeps coming
up, who's going to have access to this information?
Well, they went to great lengths in the preamble to to the final regs
to state that the information is going to be held private.
There was questions about whether or not they needed to collect
Social Security numbers
because the IRS wanted to have that information, but they chose it.
It was not in the best interest of the individuals reporting.
That's not the intent.
Therefore, you're not going to
they're not collecting your social Security number
and that information isn't going to be shared with the IRS.
Also, that information is not going to will only be shared with
governmental agencies who are performing an investigation on a particular business.
So I assume they would have to put forth some reasons
as to why they need access to this.
Now, again, it's a government database, and as we know, the Chinese
and the Russians love to hack that information.
So will that information probably make it out on the dark web?
Now, that remains to be seen.
I would assume,
unfortunately, that it will at some point in time, within the next five years.
I wouldn't be shocked
to hear some reporting come out that, oh, the FinCEN database has been hacked
and all these business owners information has been obtained.
I mean, the IRS, it happened there.
But again, I guess that's just a burden of doing business in this country now.
Anyways, I hope we got a lot of information
out of this about the final regs.
We have some time not until next year, 2024, until we have to do anything.
But that is the update.
And guys, if you're not yet a subscriber to my channel,
be sure to to subscribe hit that subscribe button.
I wish you all the best with your investment. Take care.