By  Mark H. Levin, CPA, MST

May/June 2024, Featured, News & Views, Taxation |   August 2024

https://www.cpajournal.com/2024/08/16/first-look-at-new-york-states-llc-transparency-act/

On December 22, 2023, New York Governor Kathy Hochul signed the LLC Transparency Act as Chapter 772 of the Laws of 2023. The act is modeled on the federal Corporate Transparency Act, which requires the disclosure of the identities of beneficial owners upon a company’s formation or registration, and the publishing of beneficial owners’ names to the U.S. Department of the Treasury.

Although the federal act covers corporations, LLPs, or any other entity created by the filing of a document with the secretary of state or any similar office under the law of a state or Indian tribe, the New York act only applies to LLCs.

The New York act attempts to end the practice of anonymous ownership of limited liability companies (LLC) in New York.

The state act adopts the same standards as the federal act and requires that the same information also be filed with New York’s Department of State. Companies subject to the federal government’s reporting requirements may submit a copy of their federal registration to New York’s Department of State in order to minimize the burden of such reporting. To protect the genuine privacy interests that some individuals may have, a waiver process has been created, with specific protections for whistleblowers using LLCs to file false claims act lawsuits, as well as individuals participating in a witness protection program and an address confidentiality program.

Although the federal Corporate Transparency Act took effect on January 1, 2024, the New York LLC Transparency Act will take effect on December 21, 2024; all LLCs organized prior to January 1,2026, must file an initial report before January 1, 2026. Covered Entities and Exempt Entities formed or registered to do business in the State of New York after January 1, 2026 must file an initial disclosure or attestation of exemption, respectively, with the Department within 30 days of the filing of such Covered Entity’s or Exempt Entity’s articles of organization or application for authority to do business within the State of New York, as applicable.

(Editor’s Note: As originally published in print, the article erroneously stated in the above paragraph that at all all LLCs organized prior to December 21, 2024, must file an initial report by January 1, 2025.)

The state act requires that all LLCs and foreign LLCs must include a list of beneficial owners with the documents submitted to the Department of State when organizing an LLC in New York State. Exempt companies, as defined in the federal act, must indicate which exemptions they are claiming against their obligation to file an initial report.

A beneficial owner is defined as, with respect to an LLC, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

• exercises substantial control over the entity; or
• owns or controls not less than 25% of the ownership interests of the entity; and does not include:
  • a minor child, if the information of the parent or guardian of the minor child is reported;
  • an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual;
  • an individual acting solely as an employee of a corporation, LLC, or other similar entity and whose control over or economic benefits from that entity is derived solely from the employment status of the person;
  • an individual whose only interest in a corporation, limited liability company, or other similar entity is through a right of inheritance; or
  • a creditor of a corporation, limited liability company, or other similar entity, unless the creditor meets the above definition of a beneficial interest.

The initial report of a reporting company must include the following information:

• The full legal name of the reporting company;
• Any trade name or “doing business as” name of the reporting company;
• A complete current address, consisting of—
  • in the case of a reporting company with a principal place of business in the United States, the street address of such principal place of business; and
  • in all other cases, the street address of the primary location in the United States where the reporting company conducts business;
• The state, tribal, or foreign jurisdiction of formation of the reporting company;
• For a foreign reporting company, the state or tribal jurisdiction where such company first registers; and
• The IRS Taxpayer Identification Number (TIN) [including an Employer Identification Number (EIN)] of the reporting company, or if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

The initial report must also include the following information for every individual who is a beneficial owner of that reporting company, as well as every individual who is a company applicant with respect to that reporting company:

• The full legal name of the individual;
• The date of birth of the individual;
• A complete current address consisting of—
  • in the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of that business; or
  • in any other case, the individual’s residential street address;
• A unique identifying number and the issuing jurisdiction from —
  • a non-expired passport issued to the individual by the U.S. government;
  • a non-expired identification document issued to the individual by a state, local government, or Indian tribe for the purpose of identifying the individual;
  • a non-expired driver’s license issued to the individual by a state; or
  • a non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the documents described above; and
  • an image of the document from which the unique identifying number in paragraph (b)(1)(ii)(D) of this section was obtained.

If a reporting company makes any change in the information initially required to be disclosed as described above, or if a reporting company has not filed the required disclosure, that company must file such disclosure when filing its certificate of amendment.

Although the New York LLC Transparency Act originally required the secretary to maintain a publicly available database on its website for each business entity organized in New York state and each foreign business entity with authority to do business in the state, the governor signed a compromise bill eliminating the requirement to create a publicly available database.

There has been discussion as to whether CPAs should take on the responsibility of filing the required information with the appropriate federal and state authorities, or whether these filings are best done by attorneys or the various companies that provide articles of incorporation or articles of organization.

On March 1, 2024, a Federal Court in Alabama ruled that the federal Corporate Transparency Act is unconstitutional, holding that Congress exceeded its taxing powers under the Necessary and Proper Clause as enumerated in Article 1, Section 8 of the U.S. Constitution. This decision will almost certainly be appealed. In the author’s opinion, this only adds more confusion and uncertainty as to whether the New York LLC Transparency Act will be affected by this federal court decision. CPAs should consult with an attorney before proceeding with filing the above required documents under the state act.

On July 9, 2024, the Committee on the Unauthorized Practice of Law of the Supreme Court of New Jersey issues an opinion letter regarding whether the filing of beneficial owner information reports under the federal Corporate Transparency Act constitutes the unauthorized practice of law in New Jersey.

The opinion letter states that “a licensed CPA can engage in this conduct provided the CPA notifies the client that it may be advisable to consult with a lawyer. The Committee relies on the professionalism of CPAs to ensure that such licensees will recognize when a filing is more complex and it is in the client’s interests for a lawyer to be retained in the matter.

“Given that most filings are likely to be straightforward, the Committee finds that a licensed CPA can engage in this conduct provided the CPA notifies the client that it may be advisable to consult with a lawyer. The Committee relies on the professionalism of CPAs to ensure that such licensees will recognize when a filing is more complex and it is in the client’s interests for a lawyer to be retained in the matter.

“While small businesses are now faced with retaining a lawyer or a CPA (or Enrolled Agent) to submit such reports, the businesses with straightforward filings should be able to do the task themselves, with guidance from FinCEN, the U.S. Chamber of Commerce, and other entities Corporations may file the forms on their own, but if they hire someone to do it on their behalf, it must be a lawyer or a CPA/Enrolled Agent.

“Since the Act is new and circumstances may change, the Committee reserves the right to amend or supplement this response in the future. The consideration of the public interest may be affected by the pending Eleventh Circuit case from Alabama and other court actions that may be filed, in New Jersey or elsewhere, regarding compliance with this new Act. Should those developments — or other information that may arise — affect the Committee’s analysis, it may reconsider this response”.

While this opinion letter appears to provide some relief to CPAs, it allows the Committee on the Unauthorized Practice of Law of the Supreme Court of New Jersey to reverse its opinion in the future.

Mark H. Levin, CPA, MST own account, is a member of The CPA Journal Editorial Advisory Board.