Complexities of Beneficial Ownership Reporting and the Need for Robust Solutions w/ Melissa Wiley from Lowenstein Sandler

In this episode, Frank Tumminello and Melissa Wiley, Partner at Lowenstein Sandler, discuss the Corporate Transparency Act (CTA) and its impact on businesses. They delve into the legal and practical implications of the CTA, including court cases, compliance challenges, and the timeline for business owners to file reports. Melissa provides insights into the legal landscape and the potential impact of court decisions on CTA compliance. The conversation goes into the implications of the Corporate Transparency Act (CTA) and the challenges businesses face in complying with the reporting requirements. It also explores the impact of the upcoming presidential election on CTA and BOI reporting. The discussion highlights the complexities of beneficial ownership reporting and the need for robust monitoring and data management solutions.

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Transcript

Frank Tumminello (00:03.566)
Hello everyone. Hello everyone. Welcome to this week's episode of the file forms business compliance podcast. I'm your host Frank Tuminello CEO and co -founder of file forms. Very excited to be speaking with you all today and bringing you some unique insights on the Corporate Transparency Act from experts who follow it with a very close lens. So this week's episode we have Melissa Wiley joining us. Just a quick background on Melissa.

She is a partner at Lowenstein Sandler out of their Washington DC office. She's in their tax and private client services group and certainly has been following the CTA and the BOI reporting rollout quite closely as we have as well here at Fileforms. So Melissa, please do introduce yourself to all of our listeners and say hello.

Melissa Wiley (00:56.855)
Hi, thank you so much for having me, Frank. As you know, I've been talking with you and others at file forums for a good long time about the Corporate Transparency Act. So it's always nice to delve in with people who have been kind of obsessed with this, perhaps as much as I have. So thanks again for having me.

Frank Tumminello (01:15.086)
Yeah, it was great to get together in DC a few months back when we were at the America's SBDC conference. And I was glad we got to grab some coffee and just actually get to meet in person, you know, in this virtual world these days. You become good friends with folks all over Zoom and all these other mediums.

Melissa Wiley (01:33.079)
Yeah, 100%. Somebody asked me the other day, you know, how much I travel to meet clients. And I had to think about the last time I've actually met a client in person versus just doing everything on zoom. It really is that human contact is great.

Frank Tumminello (01:45.902)
It's so refreshing when it happens though. Yeah. Exactly, exactly. So Melissa, can you just give us a quick background on yourself, kind of, you know, your experience, not only at your current role, but kind of how you've gotten to your current role and just kind of where you spend most of your time this day and age, you know, as it relates to Corporate Transparency Act and everything else that you do.

Melissa Wiley (02:11.127)
Yeah, absolutely. So I started my career actually doing something completely different or at least somewhat different. I studied actuarial science in undergrad and worked in the insurance and reinsurance industry for a few years before deciding that I wanted to go to law school. At the time I went to law school, I had in mind that I was going to do something totally different.

just really outside the box. Then as fate would have it, I became a tax lawyer, which I don't know how far I strayed from being an actuary, but there are some important distinctions. In any event, I pretty quickly settled into working in tax controversy. Most of what I do in my practice is representing clients in IRS audits, state and local audits.

working on appeals and eventually if clients want to go that far pursuing their tax disputes and litigation. Along the way, I've kind of picked up side practices and things that really serve that same clientele. So I work on some voluntary disclosures of prior tax non -compliance, fixing things that may have been misreported in the past.

certainly have focused a lot in the last several years in the international information reporting space. And so that kind of became a natural outflow into the Corporate Transparency Act when it popped up. A big part of what my clients deal with in information reporting on the tax side is the FBAR regime, the foreign bank account reports that get filed, not with the IRS, but actually with FinCEN. And so when the Corporate Transparency Act came out,

out of FinCEN that that sort of became an area that I started looking into and speaking to clients about.

Frank Tumminello (04:05.23)
Very interesting. Yeah, we know the F bar intimately well at file forms and help as much as we can with filing those forms as well. So was it really when kind of the CTA passed that you initially started following it or was there some subsequent event that was like, wow, that actually is worth kind of reading more about. Like what was that kind of sticking point for you where it caught your eye?

Melissa Wiley (04:32.055)
Yeah, I started talking about the Corporate Transparency Act a little over two years ago, actually, which was a fun time to start because anytime I raised it, people looked at me like I had two heads, one because they'd never heard of it, and also because they were like, lady, this thing is not going to kick in for another year, year and a half. Why do I care about this right now?

But the way it came up was that a friend of mine who works more in the anti -money laundering space said, look, my firm is doing a presentation about this, kind of a CLE for clients. And we wanted somebody to come and talk about what the IRS could potentially do with this data. Because of course, the IRS has virtually unfettered access to the CTA database for purposes of tax administration.

And that really kicked off the thinking in my mind about, you know, what is all this data? How could the IRS potentially use it? And what do my clients need to know now to make informed choices about how they structure their businesses, knowing that this data is going to end up, not just in FinCEN's hands, but as well as in the government's, in the IRS's hands.

Frank Tumminello (05:45.486)
It's got to be super valuable for clients to have you two years ahead of this law coming into effect, giving them guidance along the way so that it's not a retroactive structuring process once the law is in effect, but actually just adequate and in sage preparation prior to. That's got to be super. I'm sure your clients are thanking you quite a lot now that they don't have to do that retroactive work because I've heard from other folks.

I feel like we have a posse on LinkedIn every time someone makes a poster, has a hot take, but other folks in that group, that CTA group, they certainly have mentioned how clients, private equity firms specifically, are kind of coming to them saying, hey, fix this stuff. Make us exempt. Figure out how to do it versus just getting compliant with the current constructs. Are you feeling some of that as well?

Melissa Wiley (06:21.015)
Yep.

Melissa Wiley (06:40.919)
Yeah, definitely. And, you know, as you and I have talked about the focus right now is really getting clients, even though they're, I think, much more aware of the obligations than they were, you know, when I started talking about this two years ago, getting them to really focus in and not think about that December 2024 deadline. But to start doing it now, because I think as you and I both fear,

Frank Tumminello (07:00.974)
Right.

Melissa Wiley (07:07.575)
you know, this, this holiday season may not be a restful one for those of us who, who play in this space.

Frank Tumminello (07:14.446)
Not at all, not at all. I think doing our best using channels like this to kind of get the word out, but ultimately it is gonna be a wild rush in the fourth quarter. And hopefully folks are first hearing about it in that timeframe and can tune in before then. So you've obviously been educating clients on this new law.

for some time now. Obviously there's been a lot of discussion around when the right time is to file these reports. Have you felt clients getting more interested in filing now that we're borderline halfway through the year or do you still sense kind of a resistance to wait until the fourth quarter?

Melissa Wiley (08:09.303)
You know, I have seen a lot of clients start to pick up now, especially as we're moving into the summer and things are a little bit slower in other parts of their businesses. You know, that's the big challenge here is the Corporate Transparency Act is not something that was on anybody's existing docket and within my clients. And so they've all got their regular jobs to do in addition to figuring out this new filing obligation and working through.

the law for all of their various entities. We've been working with a number of clients throughout the late winter and the early spring, but I'm hopeful that they're going to all take me up on my encouragement to really take a look at this during the summer. We've definitely seen.

We've seen an uptick in the clients that have come to us and said, okay, it's getting closer. We really want to do that analysis. We want to see where we fall in terms of these exemptions. And we want to take a look at our structure and figure out, are there ways that we ought to be simplifying this? Are there ways that we can simplify our reporting by use of FinCEN identifiers? What's really going to proactively help us to make this a more streamlined process moving forward?

with the knowledge that yes, we're all aiming to get all our existing entities in by the end of the year, but that's not the end of the story. We're going to have to live with this just like I think of it as my like every six month dental appointment for kind of the rest of our lives.

Frank Tumminello (09:39.982)
Yeah, yeah, personally, I was a little little surprised by, you know, more probably more of the kind of sophisticated filers will call them such as private equity firms, family offices. And I was a little surprised that there wasn't more focus on kind of BOI preparation, but perhaps there was and I just wasn't privy to it during tax season. It seemed like tax season really distracted folks from from BOI more so than than making them focus on it. But.

Melissa Wiley (10:05.943)
Yeah.

Frank Tumminello (10:09.198)
Post -Tax season, we've seen obviously a significant shift in the winds, if you will, and have seen a significant pickup. Was there discussion over tax season in your realms of BOI or was it kind of an afterthought?

Melissa Wiley (10:24.983)
It really was an afterthought, I think. As you note, the folks that are focused within our clients on getting tax returns out, that's sort of all they can do for that month or two over tax season just because it's so overwhelming. We talk about the additional burden of CTA reporting and when you compare that to some of the burdens of...

tax reporting. I mean, it kind of dwarfs it. There's just every year, I feel like something else that our clients need to focus on to make sure that their returns get done on time correctly, completely. And it really just has become completely overwhelming during that time when returns need to get filed.

Frank Tumminello (11:08.174)
Yeah, and obviously there's a good amount of tax returns, corporate tax returns filed every year, but at the same time, there's probably going to be a multiple or two more BOI reports filed this year, actually in the next six months or so. So it will be interesting. I know a lot of people get worked up over tax season, accountants want to pull their hair out, you know, they need a two week vacation.

Afterwards, which is all well deserved, thank you to my accountant for always getting my work done on time. But I think there's just going to be a significant rush towards year end and certainly want accountants to take the time to at least provide the education, perhaps sway the proactive clients to get the work out of the way or those who have obviously filed new entities.

Melissa Wiley (11:40.439)
Hahaha!

Frank Tumminello (12:01.166)
This year because obviously those those entities only have 90 days to file So, you know effectively folks who formed an entity in January February of this year They're they're past their 90 -day window those Those in March, you know, they're gonna be facing a deadline in the next 30 days or so so I guess as we shift gears towards, you know Just the numbers around Bo I filing Melissa you wrote an excellent article recently

covering just the numbers within the court case that I think has caused a little bit of a headwind towards getting folks compliant or being more proactive. Can you just speak to your article and just inform the listeners on how they should view some of the court cases going on and how that might impact their timing of filing?

Melissa Wiley (12:50.903)
Thank you.

Melissa Wiley (12:57.911)
Yeah, absolutely. So, you know, the case you're referring to is the case that came out of the Northern District of Alabama a couple of months ago, has already been appealed to the 11th Circuit. And that essentially that court, the district court in the Northern District of Alabama held that the Corporate Transparency Act was unconstitutional, that it could not be justified based on Congress's powers under the Commerce Clause, their taxing powers or their

powers to regulate and legislate around national security and international crime. I have my own feelings about the strength of that decision that I've also talked about extensively on LinkedIn. But what was really interesting to me in that case most recently,

was that along with the appeal to the 11th Circuit, there were 22 states. The attorney generals of those states came together and filed an amicus brief, basically encouraging the 11th Circuit to uphold the lower court and continue to find that the Corporate Transparency Act is unconstitutional. Now, being the data nerd that I am, coming from my origins as an actuary, I thought like,

I want to see where those states are. And so I mapped them out. And visually, it's pretty striking. Maybe this isn't entirely surprising given how polarized so many issues are in the country these days. But when you map it, it's very much an overlay of kind of a blue state, red state dynamic, but with some notable exceptions.

What I was more interested in just than the patterns was how many small businesses are we talking about here who are in these 22 jurisdictions? Thankfully, hats off to the Small Business Administration. They actually publish that data, what the numbers are of small businesses across the country and the different states. They do it by

Melissa Wiley (15:05.015)
dollar amount, so the size of the entity. And so I was able to narrow it down and really just look at the small businesses that would not qualify for the large operating exception. Of course, you could qualify for some other exception, but I thought that that was a reasonable proxy. And what I found was that of those 22 states, it came down to approximately 40 % of American small businesses.

And that's those with fewer than 20 employees, meaning none of them will qualify again for the large operating company exception. And then I took a look at the other 28 who did not join and found that in just eight of those states, you also had 40%. And there's some of the obvious ones that you would think of, California, New York, Illinois, Pennsylvania, New Jersey, North Carolina, Michigan, and Washington.

The Michigan one, of course, is really interesting because that is where one of the other cases is currently pending, challenging the constitutionality of the Corporate Transparency Act. One of the other states where there's another case pending is Maine. Their attorney general also did not join this amicus brief. I always like to try to figure out what data tells us. I'm not sure how much this tells us other than this is

This is sort of an interesting pattern and again goes back to that that split in ideology that we see across so much of our politics. Although there were some really notable interesting ones and I've had some people contact me and say, I think this is why Oklahoma didn't join. So Oklahoma was one of one of the states that did not join that amicus brief. Kind of surprisingly, when you look at the map, they stick out.

as not having joined as does Colorado. And there was one commenter that said, Colorado and Oklahoma both have now pretty relaxed rules around cannabis and sales of marijuana, and those are small businesses. And maybe it has something to do with that. So those are all interesting viewpoints. And like I said, I always really like to see what data can tell us.

Melissa Wiley (17:22.647)
North Carolina was another one that kind of sticks out. Obviously a very vibrant economy, a very constantly growing economy these days. Lots of small businesses there. They did not join. Delaware, no explanation needed about how important they are in the entity formation space did not join. So it'll be interesting to see where additional cases pop up.

around the constitutionality of the Corporate Transparency Act because the ones that we've seen so far haven't exactly been like hotbeds of constitutional analysis. These are not courts that see a lot of big constitutional law cases and it'll be fascinating to see as different cases go through different states and potentially different circuits to see where we land.

Now, having said all that, and while I find that all really intellectually interesting, the bottom line for clients is unless you are part of the class, the plaintiff class in the Northern District of Alabama case, it is business as usual for you. You need to apply. You need to file your reports. The case does not apply to you. And I would expect that any other cases that...

that get filed, that that'll be the same case. So for the vast majority of businesses and the vast majority of locations, you know, this is really interesting to watch, but I don't think it's going to change anything in what those businesses need to do between now and the end of the year.

Frank Tumminello (19:01.23)
That makes sense. Were you at all surprised to see the initial Alabama Northern District Court verdict ruling the CTA unconstitutional?

Melissa Wiley (19:11.319)
Not really. That area of the country, the courts tend to be fairly conservative. It seemed pretty clear that that class that was put together was very specifically chosen to be in a jurisdiction where the plaintiffs thought they had the best chance of getting a positive ruling. To be clear, no shade at all there. That's what good litigators do. You

you try to find a forum that is going to be favorable to your cause so that you can win and then hopefully roll that over into other locations. Kudos to the lawyers who organized all that and got that case in that location. The 11th Circuit where that now appeals to is similarly judicially conservative. It just covers Alabama, Georgia, and Florida.

I'm not sure that I anticipate a different answer in the 11th circuit, although maybe we'll get something of a more nuanced analysis. I think there were some flaws in the case that came out of Alabama.

Frank Tumminello (20:23.278)
Interesting. And do you think these more conservative courts and states that they represent, I mean, are the states highly concerned about kind of giving up their sovereign authority over kind of corporations and how to form businesses within their jurisdiction? Or is it something else that they're fixated on? Just, you know, maybe it's cyber crime and, you know, exposing data. Because it doesn't seem that many states are actually doing

at least to my knowledge, significant initiatives to prevent money laundering. So it's not like they're offsetting this effort that the federal government's trying to put forth by taking on the responsibility and running with it.

Melissa Wiley (20:56.151)
Yeah.

Melissa Wiley (21:04.759)
Yeah, you know, I think it's probably twofold. I think one is definitely those states have more of an issue with the perception that this is federal government, you know, over creep into their jurisdiction. And that's something that they are not happy about and want to defend, you know, their sovereignty over that area of the law. I think the other is they've had...

probably significant constituent pushback on this law. And the CTA, if you go back to kind of how the sausage was made, it was very much just wrapped into a much larger bill. I'm not sure that anyone who voted in favor of that law was really focusing on the CTA aspect of it. Part of it was actually the.

defense spending authorization. And so I think that there were much bigger issues that made that bill worth voting in favor of. And so I think now what we're seeing is nobody really paid attention back when the law was enacted about who voted yes, who voted no, because that's not what people were voting for.

And now that constituents are having to sit down and deal with this law, you know, they're picking up the phone, they're calling the states, they're calling their representatives in Congress and saying, what the heck? This is not something that I think is defensible or reasonable or permissible. And so I think it probably came from a little bit of both of those.

Frank Tumminello (22:40.27)
Very interesting. So just from a timeline standpoint, obviously, you and I are basically reading the Federal Registrar and updates from the DOJ and FinCEN daily at this point. But we can't expect business owners to tune in like we are daily. When would be a good time for business owners that are still like, I'm on the fence still?

When would be a good time for them to pick their heads up for an update from the courts or from folks like us who will provide that information from the courts? I mean, where is this going from a timeline standpoint in the Levin circuit and thereafter?

Melissa Wiley (23:19.863)
Yeah, I mean, I don't think they're going to get any kind of resolution for the vast majority of business owners before the end of this year. And that's, you know, the bad news for business owners that want to take a seat back and say, I want to wait and see if this plays out. You know, we may very well get a decision out of the 11th Circuit by year end. It would mean they would act very, very quickly.

the court would have to hold oral argument and then they would need to, of course, write their opinion and release that. Potentially, maybe we get something by the end of the year out of the 11th Circuit. But that then again, as I noted, that covers three states. It covers Alabama, Georgia, Florida.

Right now, the Alabama case is limited in its application just to those plaintiffs. FinCEN has made that clear on its website. If you go to the BOI landing page that everybody else outside of the plaintiffs in that particular case, they have to comply. I would expect them if the 11th Circuit upholds the Northern District of Alabama to say the same thing. Alabama, Georgia, Florida, you guys are fine.

But the rest of the country still has to comply. And we know that that's the overwhelming majority of entities. Where it potentially gets interesting, I think, is when you throw the next one or two opinions into the mix. And so we're looking to Michigan, we're looking to Maine to see how quickly those cases are going to come out. Michigan appeals to the Sixth Circuit and Maine appeals to the First, both of which are

less conservative, particularly in the first circuit. And so we could very well end up seeing a split between the circuits in what they think. You could have one or two saying yes, one or two saying no. And that tends to be when the Supreme Court gets interested. When you've got, and these are important circuits that cover a large population and certainly a lot of businesses.

Melissa Wiley (25:34.807)
That's when the Supreme Court takes notice and says, we've got to resolve this circuit split because you can't have rules applying to some people and then applying completely differently or not at all to people in another jurisdiction. So, you know, going back to where I started, I don't think we're going to have an answer to any of this, any kind of finality that most business owners can rely on by the end of this year.

Maybe 2025, but I would say more likely 2026.

Frank Tumminello (26:06.414)
So does that put business owners basically, they have to file, they have to file and get compliant and unless, do you think FinCEN will extend or obviously the number of filing so far has been all not that much, maybe 5 % or less of reporting businesses. What do you think the move is for FinCEN if...

Melissa Wiley (26:14.263)
Yeah, f -

Frank Tumminello (26:33.806)
say we get to November and there's 4 ,000 or 4 million filings that have been filed so far, do you think they're actually going to find 25 million plus businesses or what?

Melissa Wiley (26:45.399)
I mean, I have had the opportunity to speak with folks from FinCEN and hear them talk in groups where that question has been posed to them directly. Like, look.

you guys, let's call a spade a spade. You haven't done a great job in getting the word out about this among the local business community, right? I feel like you and I and others in our sphere have done a more aggressive job in making sure that businesses are aware of this reporting requirement than FinCEN has. That said, I find that FinCEN's response in those situations has been what I think it should be, which is,

Frank Tumminello (27:02.926)
Sure.

Melissa Wiley (27:26.807)
If somebody doesn't know about the law and they don't file, that is not willful failure, right? That is, I had no idea I needed to do this and we are not penalizing that. The law only penalizes willful failure. So if you know you have an obligation and you purposefully choose not to satisfy it, that is something that is worth penalizing. You knowingly file a report that has incorrect information, that is worth penalizing. But...

Frank Tumminello (27:34.126)
Right.

Melissa Wiley (27:57.591)
Other than that, it's going to be, I think, a number of years before you see FinCEN actually going in and having any significant penalties being imposed. The big question there that also continues to linger in my mind is that FinCEN also gets the FBARs filed with them. It is such a large filing and FinCEN is such a small agency.

that they have completely outsourced the enforcement of that regime to the IRS. And that's a formal delegation. So the IRS is the one that imposes the penalties. They're the ones that do audits of FBAR compliance. So far, there's been no delegation of enforcement of the Corporate Transparency Act, but I don't see how FinCEN at its current levels of funding and staffing can possibly...

Frank Tumminello (28:29.934)
Hmm. Interesting.

Melissa Wiley (28:54.391)
you know, undertake a robust enforcement of this regime. So, like I said, I think, again, it's going to be a number of years before you see any significant penalty in positions that this will end up looking very much like the F bar regime did where for the first several years, there was just really nothing going on that.

they were expecting people to start to understand the regime. They were maybe getting some interesting and useful information out of it, but they weren't auditing. They weren't imposing penalties. And then once they feel like it's been out there long enough, and once they feel like there's resources to turn toward, that's when the enforcement really kicks up. And it's gonna start with the most egregious cases. It's gonna start with people probably who willfully filed wrong information.

people who ignored their obligation to file completely. And then, you know, it'll kind of ratchet down from there, but, you know, again, I go back to the statute itself only imposes penalties for willful noncompliance. And so what I tell all of my clients is, look, show your work, right? Like go back to elementary school, show your work, show in your files, make sure you've kept good records of the fact that you have tried to do this right.

And if you have tried to do this right, if you've sought competent advice, if you've really gone through your records, if you've tried to get everything in, that really is going to minimize your risk of anything going sour.

Frank Tumminello (30:29.582)
Yep, that makes complete sense. And one of the comments you made with respect to, you know, FinCEN and preparing for FBAR and then outsourcing, you know, the kind of levying fines, et cetera, to the IRS. To my knowledge, only 1 .5 million FBARs are filed annually in the United States. Compare that to, you know, the 32 .6 million BOI forms or BOI reports that will be filed or expected to be filed by the end of the year. FinCEN.

Melissa Wiley (30:58.039)
video.

Frank Tumminello (30:58.798)
Certainly not prepared for that type of increase in volume, which kind of bodes the question, will the IRS become more involved in BOI reporting and CTA compliance? Personally, I think that would make sense. I was a little surprised how you see Secretary of State such as the State of Florida where we're based putting BOI and CTA notice on their websites clear as day, but.

you kind of scratch your head a little bit when folks are getting their tax returns. Obviously, they're attentive to that because people want to get money back from the government. Why not offer a little CTA insight or BOI reminder at that stage? Maybe that's on the come. I'm not sure. But I'm curious to see how the IRS either does or does not get more involved in this initiative because obviously they have access to this database and can benefit from it.

Melissa Wiley (31:42.231)
Mm -hmm.

Melissa Wiley (31:53.495)
Yeah, and they have promoted a handful of webinars that have been conducted kind of jointly by IRS and FinCEN. But I think you're right. It behooves them to really dig into this space and make sure that this reporting is taking place, given that it's a source of information for the IRS. And so, especially when you look at

what is currently their additional $60 billion in funding over the next decade. That really is the agency that out of any of them will have the resources to potentially deal with this versus FinCEN. And it's continued underfunding and understaffing.

Frank Tumminello (32:36.622)
Yeah, I think I love the statistic that FinCEN has about 18 ,000 total followers across all of its social media platforms. And I think that's just a clear indicator that small businesses simply don't know who FinCEN is. So despite any effort to get, you know, good, good, good, good intentioned educational content out on this new law, it's just only going so far when you think about the masses of business owners that

Ultimately that that knowledge needs to get to so it's just it requires more than just you know a small agency that no one's ever reported to historically How about the presidential election, you know, obviously, you know January 1st 2025 is is kind of the the lion's share of businesses deadlines You know to get their initial report in that's that's obviously shortly after

will be going through our election here in a few months. So do you think that will impact the CTA or BOI reporting at all?

Melissa Wiley (33:41.751)
You know, I think the most obvious way could have affected is in terms of enforcement. If you do see a change in particular in the White House and a significant sea change in Congress, there could be a push within the executive branch to just say, you know, this law is on the books, but we're not enforcing it. And there certainly is precedent for that on both sides of the aisle that there have been.

laws that while they haven't been overturned because there's not been the political willpower or the legislative support to get that done, the executive branch has just said, that's fine. It can stay out there, but we're not enforcing it or we're going to spend very little effort in enforcing it.

You know, obviously, as practitioners, our answer is still, you got to do it. It's the law. You don't want to be found to be breaking the law. And there are penalties and things could change. But if there is, you know, a very public statement from the administration that says, don't worry about this, we're not enforcing it, that could very much change things.

Frank Tumminello (34:50.046)
Interesting. Thus far, as you've educated clients, could you speak to who ultimately within your client base, what percentage of your client base will be impacted in the types of businesses that fall into the different industries or constructs that will be impacted by the CTA?

Melissa Wiley (35:12.695)
Yeah, I mean, I would say for my clients, it's the vast majority of them are impacted, even if they just need to do the analysis to see if they're exempt or not. And maybe they need to do some restructuring to make sure that they're exempt. What I've seen a lot both in our investment space as well as in our family office space is,

they think they're fine because there's an operating company somewhere and they know that every subsidiary under a large operating company is fine. But then they kind of lose sight of the fact that when you've got holding companies stacked on top, that the subsidiary exemption only goes one way, it's for the subs, it doesn't go up. And so I think a lot of our clients are finding that they've got that sort of issue. In the family office space,

You know, the guidance we have from FinCEN on how to apply the law is just, I've taken to referring to it as Swiss cheese because they're just such gaping holes in how you report beneficial ownership when there are multiple trusts involved. You know, maybe there's a class of beneficiaries, but in practice, it all goes to one person. What does that mean? You know, the law is very simplistic and the

planning around wealthy families is not. So we're really trying to do our best. And here again, is where I go back to that advice to our clients of show your work, make sure that it's clear that we tried our best to comply, that there are a million holes. We didn't get any guidance. We tried our best to comply. And this is what our analysis led us to, because it's just been hard. And frankly, it's...

been hard for those who run these family offices to try to kind of herd all the cats that they need to herd to get the information that's necessary when someone says, what do you mean? I don't own that. Like, I happen to be a trustee of four different trusts for that family. I don't own anything. Why do you need anything from me? And the answer is, well, we have to aggregate, you know, what you are.

Frank Tumminello (37:23.854)
Right.

Melissa Wiley (37:28.087)
viewed as having control over and that gets you over 25%. And so can you please give me your passport?

Frank Tumminello (37:34.958)
Yep. Very interesting. Yeah, I guess, I mean, as you, as you kind of consult clients, you know, in the different, you know, whether it's investors, family offices, you know, are you actually going to file say family office owns a commercial real estate portfolio, passive income stream, very, very traditional, for a high net worth family. I mean, does that individual truly plan to put their information across many, many entities or?

Melissa Wiley (37:56.951)
Yeah.

Frank Tumminello (38:05.326)
you know, is that work your paralegals plan to do or do you intend to kind of outsource that work and ultimately just provide the consultative services determining whether or not that individual is a BO or the business is a reporting company or exempt?

Melissa Wiley (38:11.367)
That's how it came out.

Melissa Wiley (38:20.023)
You know, it's really been very different across every family and every client that we work with just because they're all staffed so differently. So like some of our family offices have really robust staff. They've got somebody who has the bandwidth to take that on. And so what we're doing is really working through the analysis with them, but they're handling the filings themselves. For some, they're, you know, especially for,

kind of family offices or wealthy individuals that maybe have one person that covers everything that has a dollar sign on it, you know, they're saying, please just do this. And if it's, you know, us doing the analysis and then outsourcing to somebody who's gonna actually make the filings or, you know, we do some review of filings or make the filings for them. It's really, it depends on.

how much capacity there is and how much staffing there is in -house to deal with this. I would say the scariest thing for most of our clients, regardless of size and staffing levels, is how do we monitor this thing going forward? The information that is required and the changes that need to be reported, those don't all go through one person. So when you're

Frank Tumminello (39:30.478)
Yeah. Yep.

Melissa Wiley (39:45.367)
chief operating officer moves, maybe HR knows that because they have to change where their payroll goes to. But is HR reporting that to whoever is responsible for BOI compliance? Probably not. And that's kind of the other part of what we've been trying to work with clients on is developing those systems and developing those information flows to make sure that they do know what's going on. And...

While we are pretty universally telling all of our clients, you know, get FinCEN IDs, don't go and upload all this information every single time, just use FinCEN IDs for everyone who is identified as a beneficial owner.

The hard part is that it's really easy to say to the CEO of a company, by the way, make sure that if your address changes or you get married and change your name or your passport expires, make sure that you go in and update that with your FinCEN ID. Good luck. Good guy.

Frank Tumminello (40:47.246)
Yeah, that seems like maybe for the tech -enabled folks, or the folks can navigate a computer, but there's certainly a lot of customers out there, and I'm sure clients of yours, who would struggle with that. The monitoring of the data is certainly a major consideration that I think many times gets looked over. This is obviously a new law, there's complexities, there's a bunch of defined terms, 25%, substantial control, to name a few.

A lot of people don't realize that there's this need to refile within 30 days of change of information. And to no surprise, the change of information is probably going to come in a critical time of the business when either a C -suite executive is coming on or off boarding, potentially someone's moving their home or their business and that doesn't address change or.

You know, even if your ID expires in some cases that could cause a refiling need and ultimately have to go to the DMV and set an appointment and it's a huge hassle. So, you know, there, there certainly is a need for a savvy piece of technology, to, to monitor those, those pieces. because I don't think to your point, family offices or other investment groups are, are built for this, nor are they built to securely aggregate IDs for that matter. I mean,

Melissa Wiley (42:04.375)
That's all right.

Frank Tumminello (42:08.142)
to subject people to sending it via text message or via email is certainly a liability this day and age.

Melissa Wiley (42:08.151)
Yes.

Melissa Wiley (42:15.319)
Yeah, I mean, that you just hit the nail on the head with that too, is the secure storage of that information. That alone is one of the reasons that a lot of our clients are using FinCEN IDs and whoever is in charge of compliance here, they don't want that information. They don't want a copy of the chief financial officer's driver's license. They don't want to be responsible for that.

And so it's a lot easier and a lot more secure in terms of data security to use that. But by the same token, yeah, if you're doing a FinCEN ID, it's consolidating all of that sensitive information to one number, but that one number itself is still sensitive. And how are you guarding that? How are you maintaining a database of that? That alone is a really good reason to look into working with an outside provider to manage that for you.

Frank Tumminello (43:09.998)
That's why file forms can help people. We're here. We've built an industry leading piece of technology. We continue to innovate and we certainly have served not only small businesses, but family offices, real estate professionals, lawyers directly, CPAs, et cetera. There's gonna be a huge push for filings to get done in the next few months here. And certainly if you're a business advisor or managing,

Melissa Wiley (43:12.151)
Haha.

Frank Tumminello (43:39.47)
A large amount of entities now is really the time to get a solution in place because there is a good amount of information here to aggregate everything from IDs to addresses to EINs and personal identifying information. It will be a fire drill if you're trying to collect this over the holidays from the different partners who will probably be at their beach houses enjoying themselves with their families as they should. I'm sure they work hard for that.

But you know, we need to certainly help get people aware that that there is a lot of work to be done, especially in these larger investment opportunities trusts, for example, unraveling those balls of yarn can be quite quite significant work. I guess in closing thoughts, how do you how do you think about just you know, one 1 .7 million I think was the last

update we got from Andrea Gacchi. It's probably two million filings so far now. I mean, do you think we'll see a significant pickup over the summer here into the fall? Or do you think it's going to kind of still be a linear trajectory just given all of the confusion and unawareness that still exists?

Melissa Wiley (44:53.399)
Yeah, I think unfortunately it's gonna be the latter Frank, you know, it doesn't matter how much you and I keep talking and telling people, please, please get this done now. I think there's just gonna be a rush in November and December. That said, I also think that, you know, we're gonna get to January of next year and the number of filings will be nowhere near the 35 million that FinCEN anticipated.

That's purely an awareness issue. Whenever I talk to people about the Corporate Transparency Act, I point out that I have focused on this thing for two years. I just remembered maybe a year into it that my husband has an LLC that he uses for investments.

and that that would need to file. I mean, like this is going on in my own home and I use this as a big part of my practice. And so I think the awareness just isn't there. You know, on the other side of things, there are things that caused me to think maybe we're doing a better job than we know. I've done some pro bono work with the DC bar. They've done some clinics to help local small businesses comply and.

I remember sitting there, you know, one Saturday in a local library and I had three or four clients come in, you know, one had a hair salon, another had a contracting business, another I think had a landscaping business. And they came in, they're like, all right, so what I understand is that I have to file this and it needs to get in by the end of the year. And these are the people that own it. Nobody else has this. And they just had their shit together in a way that I was overwhelmed by. So, you know, maybe I'm being overly pep.

Frank Tumminello (46:34.19)
Good for them.

Melissa Wiley (46:39.799)
pessimistic. Maybe there are more people who realize it and just need to get around to doing it. But I guess we'll see in about six, seven months.

Frank Tumminello (46:49.358)
Yeah, well, we'll certainly keep everyone updated. Rest assured. Any closing thoughts, Melissa? I really appreciated your time today. But any kind of guidance or closing thoughts? Not legal advice, but for our listeners before we sign off here.

Melissa Wiley (47:01.623)
Hahaha!

Yeah, no, I think this is all of this is just a reminder. And you know, you alluded to it too, Frank, that there's this community out there that's really trying to help clients get their arms around all of this. And it kind of takes a village. And what I've been so pleased to see is that folks like you at Fileforms and attorneys and accountants, we've all kind of banded together to try to serve our clients and fill the needs of the small business community out there.

And so I guess my closing thought to folks who listen to this podcast is just, you know, there is a group of professionals out there who are ready to support you all along the way. So do reach out. We all know each other. We'll get you to the right person to make sure that your requirements are taken care of.

Frank Tumminello (47:53.582)
Yeah, you know, I think between us all, we can serve, you know, the simplest entities all the way to the more complex. And, you know, obviously we're a technology solution and, you know, we provide a good amount of efficiencies from, you know, a data management standpoint, a security standpoint, data aggregation, et cetera. But there's certainly, you know, hands -on work that needs to be done in some instances where Melissa and her team are experts and can kind of provide a peace of mind and clarity so that you can avoid the...

unnecessary fines from the government that are, they seem quite substantial whether or not they get, you know, enforced in the near term or down the road. It just doesn't seem like a liability anyone should, should want to have on their books. In some cases, it's easier to file and work with folks who can kind of guide you accordingly rather than try to outrun this and potentially get blindsided. So education and you know, is the name of the game. That's the mission to spread awareness and

Melissa, thank you so much again for joining this week and looking forward to continuing to uncover this saga as it develops every day or week here. It'll be an interesting end to the year for sure.

Melissa Wiley (49:04.983)
Absolutely. Thanks for having me and great to talk to you again, Frank.

Frank Tumminello (49:08.686)
Excellent. Thank you so much. Have a great rest of your week.

Melissa Wiley (49:11.415)
You too.