126. Freelancers and Financial Crimes

In January 2023 a new reporting requirement affecting LLCs and s-corps — small and independent businesses legally registered with their secretary of state — took effect.

This requirement hasn’t been widely communicated. My goal in this episode is to inform you about this new law, why it was implemented, and the information you need to supply if your business is an LLC or corporation.

I researched to discover if this is the result of an agency ruling or legislation.
It’s legislation.
The bill was HR 6395. The Corporate Transparency Act. It appears to have been enacted because Congress is untrusting of small business and micro business owners. In its effort to reduce the likelihood of fraudulent activity by nefarious persons, all LLCs and s-corps are now subject to another reporting requirements, and this time with the federal government.
Excerpt from the legislation itself:
It is the sense of Congress that —
(1) more than 2,000,000 corporations and limited liability companies are being formed under the laws of the States each year;
(2) most or all States do not require information about the beneficial owners of the corporations, limited liability companies, or other similar entities formed under the laws of the State;
(3) malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States;
(4) money launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures, much like Russian nesting ‘‘Matryoshka’’ dolls, across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process;
(5) Federal legislation providing for the collection of beneficial ownership information for corporations, limited liability companies, or other similar entities formed under the laws of the States is needed to—
(A) set a clear, Federal standard for incorporation practices;
(B) protect vital Unites States national security interests;
(C) protect interstate and foreign commerce;
(D) better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity; and
(E) bring the United States into compliance with inter- national anti-money laundering and countering the financing of terrorism standards;
(6) beneficial ownership information collected under the amendments made by this title is sensitive information and will be directly available only to authorized government authorities, subject to effective safeguards and controls…
And it goes on.
You can read the bill in full and download the PDF here. 

As a freelancer, you are the beneficial owner of your business. You have substantial control over your business activities. You own at least 25% of your business. You reap substantial economic benefits from the business assets and operations.

If you’re already operating as an LLC or s-corp you have until December 31, 2024 to comply with the requirement. If you’re planning to form an LLC or s-corp, then you’ll have 90 days from the date of formation to report your information to the feds.
Any changes to your information, drivers license or business license has to be reported withing 30 days of the change. 
The following information must be provided to Financial Crimes Enforcement Network (FinCEN).
    1. Your full legal name
    2. Your Date of birth
    3. Your Current residential street address
    4. A  passport, state identification, or driver’s license number
    5. Image of the passport, state identification, or driver’s license
If you’re closing your business you will want to do that before the end of the year so you don’t have to be concerned with this requirement.
The CTA beneficial ownership filing is mandatory for freelance businesses. Fines for non-compliance are significant — $500/day to a maximum of $10K/violation, and up to 24 months in prison.
One thing you will need to be aware of is scammers are already using this CTA reporting to take advantage of unsuspecting freelancers.  The Financial Crimes Enforcement Network website carries this warning above the fold:
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.
You can read it for yourself at here. 
On that same website you can find additional information about the Beneficial Ownership Information Reporting Requirements, and also subscribe to their newsletter.
© Alvalyn Lundgren. All rights reserved.


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