New York’s LLC Transparency Bill Puts Tax Pros in a Tight Spot

New York’s LLC Transparency Act walks a tightrope between transparency and privacy in requiring new disclosures from limited liability companies. And while it doesn’t revolve around tax, accountants and tax practitioners may be the ones tasked to balance that tightrope if it becomes law.

The New York measure closely mirrors the federal Corporate Transparency Act, or CTA, which takes effect Jan. 1. New York’s measure would take effect 365 days after Gov. Kathy Hochul (D)'s signature, which is currently pending.

CPAs and other tax professionals are already navigating CTA compliance implications. Liability insurance carriers have advised many that filing reporting forms on behalf of clients would constitute unauthorized practice of law. The American Institute of Certified Public Accountants issued a risk alert in October on navigating the CTA, and many advisers are indicating they won’t file these forms.

Meanwhile, Jonathan Dixon, a senior adviser with the Department of Treasury, said at a Nov. 2 AICPA Town Hall that the Financial Crimes Enforcement Network needs tax professionals’ help to educate the public about their CTA compliance obligations.

FinCEN has also directed tax practitioners to check with individual states to learn if filing CTA forms for clients is in the scope of authorized tax activity. Other FinCEN filings typically coincide with practitioners’ work under the tax code, but CTA filings are independent of the IRS filing system at this time.

The pending New York legislation doesn’t address any of these issues. It’s unclear whether state officials will do so or if federal officials will resolve the confusion before Hochul signs this first-of-its-kind law on businesses.

LLCs operate in relative anonymity, providing only minimal information during registration. The bill would require them to disclose the identities of their beneficial owners—those who own at least 25% of the company or exert substantial control over it.

This information would be accessible through a publicly maintained database by New York’s secretary of state. This is unlike the information collected on the federal level, which is retained by FinCEN but only can be obtained through a FOIA request.

Reporting companies must provide beneficial owner information to New York state, including full legal name, date of birth, and current business street address. Since many LLCs are used to hide ownership of real estate, this law would bring accessible accountability to LLC-owned properties. Renters would now know their landlords, and owners would know their neighbors or tenants—a significant issue in New York City.

New York’s secretary of state is authorized to issue regulations allowing beneficial owners to apply for waivers that would withhold required information. Owners would have to show “significant privacy interests” such as a “natural person participating in an address confidentiality program” to qualify for the waiver.

A significant issue for tax practitioners working with clients will be knowing when the beneficial ownership changes within the LLC. Practitioners are often the last people to be made aware of business changes, but a change in beneficial ownership under the new measure would require a new filing within 30 days.

Enhanced transparency would prevent anonymous ownership, help law enforcement agencies track down illicit and money laundering activities by identifying the true owners of businesses, reduce potential for fraud and financial crimes, and prevent tax evasion schemes by discouraging the use of shell companies for illegitimate purposes. But will a $250 penalty be enough of a deterrent?

Some LLC owners who worry that revealing detailed information could jeopardize their security might opt simply to pay the penalties. What’s unclear is how the penalties would be paid, as well as whether tax practitioners would be tasked with calculating the penalties on tax returns.

The federal government has relied heavily on accountants and tax practitioners in processing many of its programs. Will tax professionals once again be required to help New York state implement this transparency law?

If so, practitioners must diligently communicate our role to our client entities and owners to avoid any confusion regarding responsibilities. Clear language should be in our engagement letters to make clear that reporting is the client company’s responsibility.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Orumé A. Hays is CEO and founder of Hays CPA LLC and holds leadership positions with the AICPA, New York State Society of CPAs, and National Association of Black Accountants.

Philip J. London is partner emeritus in the state and local tax group at Wiss & Co. and a vice president of the New York State Society of CPAs.

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