Do Your FinCEN Reporting NOW
FinCEN registrations have to be done by the end of the year. Don’t slip up and forget. This is a big deal, so don’t let it slide. Almost all your LLCs, corporations, and limited partnerships have to be registered with FinCEN or the penalties are huge.
The reporting requirements in the Corporate Transparency Act (CTA) that took effect January 1, 2024, have killed any hope of anonymity by using a Wyoming LLC, or an LLC in any state for that matter. Even if you are not worried about anonymity, you are going to be profoundly affected by this law.
In 2021, Congress passed the Corporate Transparency Act. This law creates a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for the bad guys to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
The new program is called the Beneficial Ownership Information Reporting system, and it is enforced by the Federal Financial Crimes Enforcement Network (FinCEN), a department within the Treasury Department – the same folks who brought you the IRS.
Never heard of FinCEN? If you have any type of a business (limited partnership, corporation, or LLC), it will become as common a term as the term “IRS.”
Under the new laws, “beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company.”
Reporting
As of January 1, 2024, you have to register the “beneficial ownership” of each LLC, corporation, limited partnership, or any other type of business entity where you make a filing with the state. These are called “reporting companies.” There are exceptions for companies with many owners, banks, insurance companies, and lots of other companies that are already regulated. But this reporting hits the little guys – us!
A “beneficial owner” is any individual who, directly or indirectly exercises substantial control over a reporting company – OR – owns or controls at least 25% of the ownership interests of a reporting company.
Entities that were in existence on January 1, 2024 have to be registered before the end of 2024. If you create a new entity during 2024, you only have 90 days from the state filing date to register all the information about the company and its owners with FinCEN. This reporting requirement isn’t just a suggestion. You will register, because the penalty is $500 per day after the deadline, PLUS a $10,000 penalty for good measure, PLUS two (2) years in jail just to let you cool off.
You will notice the program is run by FinCEN. These guys have guns, and they have all the collection power of their big brother – the IRS. FinCEN itself estimates that American businesses will spend over $23 billion and hundreds of millions of hours in this registration process; even though there isn’t any fee for the registration itself.
The registration for an individual beneficial owner is quite simple. It requires:
- Full legal name
- Date of birth
- Complete current address
- Unique identifying number and issuing jurisdiction (with image) from one of the following non-expired documents: U.S. passport, state driver’s license, identification document issued by a state, local government, or tribe.
If you have a number of companies, like a lot of real estate investors do, you could get a personal “FinCEN identifier” and then just put that number on each company registration to identify yourself. You can get an identifying number from FinCEN by opening a government account and providing the same information you would have to provide on each company filing.
I agree that we need to try and shut down the mob and others from laundering corrupt money, but this is just another government intrusion into our life. It’s a way to harass and control good people. The bad guys will figure a way around it, and we are stuck with the harassment of another government agency.
Privacy?
The big sales pitch you get at seminars and online for privacy is to put your corporation or LLC in Wyoming or some other state where the registered agent can put their name on the state records and keep your name off the state records. Of course, you pay the registered agent and the state for this “privacy,” and they are getting rich. You are getting poorer.
The name of the registered agent in Wyoming, whose name is on the LLC filing to hide your name, isn’t going to cut it as the beneficial owner under the new FinCEN laws. Your name is going to be the one reported as the beneficial owner
A favorite strategy of people attempting to maintain their privacy is to register their company under a registered agent’s name in a glamor state such as Wyoming, and then have that company file for a company in the state where their property is owned or they are doing business. That isn’t going to work anymore, if it ever did.
Each company is going to have to report information on who the “company applicants” are. That will be the individual who made the filing at the registered agent company in the glamor state. Companies or legal entities cannot be company applicants. There are two categories of company applicants – the “direct filer” and the individual who “directs or controls the filing action.” Whether you had anything to do with the filing of the documents, you will be tagged as the beneficial owner.
I have always told people to put their LLC in the state where the LLC does business, or where the LLC owns property, and just forget about privacy in exotic Wyoming, Nevada, Utah (ick), or any other state.
I have never thought there was much of any reason to use an exotic LLC. If someone also had a Wyoming LLC, I have told them to go ahead and use their Wyoming LLC, but it would have to be registered in the state where it owned property or was doing business. I have said that it might give them a tiny bit of anonymity.
There never was a tax advantage to using an exotic entity. You are always going to pay tax in the state where the money is earned. Filing in an exotic state just means you have to file a tax return in the exotic state plus the state where the money is earned. Plus you have to pay the annual fees in each state as well.
There isn’t really any asset protection advantage, because any lawsuit will take place in the state where you are doing business or own the property where there was a problem. The state where the trial is will use its state laws. Technically, some procedural issues should be decided using the laws in the state where your LLC is formed, but practically speaking you will be using the laws where the trial is being held.
Over the years, tons of people have told me they were anonymous because they filed their LLC in Wyoming. I have always answered, “I don’t think so.” Now with FinCEN in place, I know the answer is NO!
In addition to the registration requirements, the government has put a massive data sharing agreement in place. Each agency is supposed to have access to every other agency’s information on you. This will speed up your qualification for government benefits, catch the bad guys, allow the IRS to catch cheats, and will provide tons of other benefits. The agencies are getting much better at sharing data. States are now even required to feed a lot of their data into the federal system.
FinCEN data will be shared with federal and state law enforcement, states and local governments, and banks/financial institutions. This all sounds great, but to law abiding citizens, this is harassment and control.
Kill It
If you have an entity that you have really never used, you may not have to report it to FinCEN. You will have to meet all six of the following criteria to have FinCEN consider it an “inactive entity.”
1. The entity was in existence on or before January 1, 2020. Y/N
2. The entity is not engaged in active business. Y/N
3. The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially. Y/N
4. The entity has not experienced any change in ownership in the preceding twelve-month period. Y/N
5. The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period. Y/N
6. The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity. Y/N
FinCEN may not require you to register, but remember, FinCEN is the little brother of the IRS. Dormant entities are dangerous when it comes to the IRS. Do you have an unused EIN out there? They act as IRS audit magnets.
If you have an EIN and have filed a 2553 Subchapter S election or an election to be a Chapter C Corporation or LLC, then you may have real trouble. People get these companies because they get “sold” on how great they are at seminars, and then they never do anything with them. They never earn any money, so they never file a tax return. With a C or S Corporation or LLC, you are required to file whether or not you make any money.
For every month that your return is filed late for a C or S tax filing, the penalty at the IRS is $220 per owner (shareholder or member). I have had folks come to me and Ben with $80,000+ bills from the IRS for a C or S entity they “forgot about.”
If you are filing tax returns for the entity, simply file a final tax return with the IRS to kill your EIN. Just check the box on the tax from indicating it is your final return. You can make that filing at any time. Do it now.
HOWEVER, don’t just file a final tax return on an entity that you have never filed a tax return for. You have to work directly with the IRS to kill an EIN that you have never used. If you file a final tax return, the IRS will ask where the prior tax returns are.
It sounds weird, but you need to write the IRS a letter telling them the EIN needs to be cancelled because the company never materialized, and no business was ever done in it. No money was ever generated in the company.
Even though you have been paying the state fees for the LLC or corporation you filed and never used, you probably never set up a bank account or did any business with the company. You don’t have any creditors or debts owed by the company, so it should be pretty easy to make a formal termination or “dissolution” of the entity with the state where it is filed.
In order to tell FinCEN that the entity is dead and gone, you need to formally kill it with the state. Just not paying the state fees won’t kill the company in the eyes of FinCEN.
The state’s biggest concern is that you leave creditors hanging when you dissolve the entity, but if you have never done any business, it should be easy to satisfy the state that the company doesn’t have any creditors and you can get a formal dissolution of the entity from the state.
The state where the entity is filed will have a dissolution form on its state website. There is often a fee to formally kill an entity.
If the entity has never gotten an EIN, then obviously, you don’t need to do anything with the IRS. If you didn’t get an EIN and you did use the entity in some way, you would have just reported any income or loss on a Schedule C attached to your 1040 return, and the IRS doesn’t even know you have an LLC or other entity.
Trusts
One question I keep getting is about a trust that owns an LLC or corporation. You should have your living revocable trust own the stock in your little corporation or your membership interest in your little LLC. The only reason for doing that is so your family won’t have to probate the entity when you die.
Having a trust own a corporation or LLC doesn’t offer any more asset protection or anything like that. There really isn’t much anonymity gained by having your trust own your LLC, because your name has to “be on title” as the trustee. Remember, on any ownership document (stock or membership interest), the trust’s “name” has to include 1. Name of trust, 2. Date of trust, and 3. Name of trustee.
The registration requirement for FinCEN will undoubtedly require naming the trustees and the beneficiaries of the trust. Your trust isn’t secret, so you are not disclosing anything important, but this whole thing is just one more level of government regulation.
Trusts don’t have to report. They are not “reporting companies.” There are two types of reporting companies: Foreign companies, which you are probably not worried about, and domestic companies, which are “corporations, limited liability companies, limited partnerships, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.” There isn’t any state filing with a standard living revocable trust.
However, if your living revocable trust owns an interest in a reporting company, the following individuals may hold ownership interests that will have to be reported:
- A trustee or other individual with the authority to dispose of trust assets
- A beneficiary who is the sole permissible recipient of trust income and principal or who has the right to demand a distribution of or withdraw substantially all the trust assets
- A grantor or settlor (the guy who sets up the trust) who has the right to revoke or otherwise withdraw trust assets
However you own a reporting company, FinCEN is going to be a pain for you, and it could be expensive.
The fly in the ointment will be that the reporting with FinCEN will have to be updated every time anything changes with the trust or in the reporting entity. This will be a big thorn in your side, and you (we) will have to pay close attention because the fines are major hits. Once again, the government is hitting you below the belt. They are always well-intentioned, but we pay the price, and it almost never delivers the intended benefits.
A Brief and Incomplete Smackdown
The Corporate Transparency Act (CTA), which is the law behind the FinCEN registration program, was held to be unconstitutional. Late Friday night, March 1, 2024, a judge in the Alabama Federal Court struck down the law in a total smackdown.
He actually ruled in a summary judgment that the law was unconstitutional. That is unusual. It means there wasn’t any argument, fact, or way the government could make a case that the CTA was constitutional.
The judge pointed out that the $500 fee for every day a required report to FinCEN is late, plus $10,000 penalties, plus two years in jail was “nothing less than offensive, unfair, and outrageous.”
Governing little companies has been left to the states under the Constitution. The Federal Government, through FinCEN, is basically putting a huge burden on all companies and “going around” the states.
When the judge ruled it all unconstitutional, everybody assumed that you didn’t need to do anything to register for FinCEN until further notice. We got further notice a couple of days after the court ruling. FinCEN came out in a press release that said they only considered the court decision to affect the plaintiffs in the case.
The case was brought in the Alabama Federal Court against the Treasury Department (Mother of the IRS and FinCEN) by the National Small Business Administration.
In FinCEN’s press release, they have taken the position that only the plaintiffs in the case (the National Small Business Association and its members as of March 1) are exempted from filing by the court ruling. The rest of us poor suckers are not protected by the constitution and are required to file.
Not only is there the registration process, there are onerous and numerous ongoing obligations. You have 30 days to notify FinCEN of any change of address of an owner, new driver’s license number issued for any owner, change of name, etc., etc., etc. I am sure that the first thought you have when you change any info on your driver’s license is, “I have to register with FinCEN.” It will be nearly impossible not to slip up somewhere along the FinCEN path.
You will have slip-ups, and it is totally up to the government as to whom they prosecute and whom they let slide. The law is straightforward with FinCEN, and it has big enough teeth that it can be used to destroy any business.
Scams to Watch For
The new Beneficial Ownership Information Reporting program is turning out to be a bonus for scamsters. They are offering to file for you, or they are calling and demanding information on your company because of the new law that you might have heard something about.
I’ll just let you read the government alert on this scam:
Alert: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages or click on any links or scan any QR codes within them.
A take-home message in this newsletter is, watch for the reporting requirements on your LLCs and corporation, and don’t miss the deadlines. Be careful of the scammers that are going to capitalize on the entire FinCEN Program. FinCEN will never contact you by phone or the internet and will probably not even contact you by mail.
The IRS has almost entirely stopped contacting people by phone or the internet because of the fraudsters calling and saying they are from the IRS. Be CAREFUL! The old adage is true; if anyone says, “Hi I’m from the government, and I am here to help you,” you know they not from the government or they are lying.
FinCEN and Real Estate
But wait, there is more. Just when you thought government overreach couldn’t be more invasive, it did.
FinCEN has now published its final rules for registration of residential real estate transactions. The rules will take effect December 1, 2025.
The stated goal is to eliminate money laundering via real estate.
You personally won’t have to supply the registration information. There is a list of people or institutions involved in the transaction that will be responsible for the actual registration of the required information – the real estate agent, title company, etc.
Basically, all residential real estate transactions that don’t involve a mortgage have to be registered with FinCEN, unless title is taken in the name of an individual.
The regulations read: Transfers are reportable when they meet the following criteria: (1) the property is residential real property; (2) the transfer is non-financed; (3) the property is transferred to a legal entity or trust, and (4) an exemption does not apply.
“Residential” is defined broadly to include raw land where a residence could be built, for example. “Non-financed” is also defined broadly to include gifts, for example. The rules pick up most “entities” that you would commonly think of.
There are some exceptions, such as a transfer because of death, divorce, bankruptcy, court order, or a1031 qualified intermediary. A transfer into a standard living revocable trust would not be required to register provided it is a trust in which the individual, their spouse, or both of them, making the transfer are also the settlor or grantor of the trust. Basically, if you are transfering it into a “disregarded” trust that you created, you don’t have to file.
I got an email today asking what could be done to keep assets & transactions private from the government (specifically FinCEN). My answer is: you have to comply. Your privacy is gone.
