CTRs For Sole Proprietorships
This week's Compliance Clip explains how to complete a CTR on a sole proprietor who uses a DBA (doing business as) alias in operating their business. Adam explains what is needed in the CTR and provides the applicable guidance reference to cite the requirements.
Video Transcript
The following is a transcript of this video.
This Compliance Clip is going to discuss CTRs for sole proprietorships. This is a BSA topic.
The question is: How should a CTR be completed for a sole proprietorship?
What a sole proprietorship, of course, is when you have an individual who owns a business but they're operating essentially as themselves. There’s no liability shelter for them such as an LLC or something like that but they're operating the business one in the same and it comes back to tax reporting and business entity registration. But the idea is if you have a photographer, they are probably going to operate as a sole proprietor. That's what we're talking about.
Specifically, we're talking about sole proprietors that are operating under a different name, which is a DBA or Doing Business As. For example Adam Witmer doing business as AW Photography. AW Photography is not my legal name and in the state of Indiana where I live, I have to file an assumed name certificate to do business as something different than my legal name. That's what we're talking about here.
So how do we complete a CTR when you have a sole proprietorship doing business as a different legal name? That's our question.
The answer is found in Frequently Asked Question #26. FinCEN or Financial Crimes Enforcement Network has released a number of frequently asked questions on how to complete CTRs. And question number 26 answers our question.
The Question #26 states, “What is the proper way to complete the FinCEN CTR for sole proprietorships in legal entities operating under multiple DBAs?”
What we're worried about is the first part of the question - the sole proprietorship. The second part is legal entities operating under multiple DBAs, that's a question for another day. So our question relates to sole proprietorships.
The answer to this under Frequently Asked Question #26 is “FinCEN does not require a covered institution to complete two Parts Is when completing the FinCEN CTR for a sole proprietorship or a business operating under a DBA name.” So some people thought, “Do we complete two Part Is, one for the sole proprietor and one for the individual? The answer is no, you'll just complete one. And in fact, fFrequently Asked Question #26 gives a couple of examples on how to complete CTRs for sole proprietors. So let's take a look at those.
Example number one talks about Jane Smith. And their example is Jane Smith operates a sole proprietorship under the DBA name, ABC Express. So her business is, she operates carrier pigeons, right? ABC Express. There are no employees and the sole proprietorship uses the same tax ID number as Jane. So that is something that can be done as the sole proprietorship. ABC Express can actually use the same tax ID number as Jane because legally Jane and ABC Express are one in the same. They're the exact same entity. So they can use the same tax ID number.
So how do you complete a CTR when this is the case? Well, in this case, the CTR is going to be completed by checking box 2a that Jane conducted the transaction on her own behalf and then what you do is list Jane's name and her personal information in Part I but then in item 8 of Part I under, I believe it's alternate names, we'll take a look at this in just a minute, you list the DBA name of ABC Express. So ABC Express goes in item 8 and all Jane's information goes in items 4 through 7. So those are the items it goes into and we'll look at this in just a minute.
The second example is very similar, it's Jane Smith is operating her sole proprietorship under the same name ABC Express but there are several employees so the sole proprietorship uses a different tax ID number from Jane. So what do we list right when there's a different tax ID number? How do we complete this? Well, basically what it comes down to is the CTR is completed the same way. You list Jane's information and Jane's social security number. You don't worry about the tax ID number of the sole proprietorship. But you list it as Jane conducted it on her own behalf. List the information of Jane and then under item 8, you list the name of the DBA, which in this case of course is ABC Express.
Let's take a quick look at what this looks like because FinCEN has given us an example here and specifically you can see in Part I on how they want us to complete this is under item 2A here at the top left you are going to check the person conducting the transaction on their own behalf. Then we go down and you see Jane Smith's name and information is here. But then you see you go down to item 8. So you see the alternative name is listed item 8. You put ABC express there. Of course you list Jane's personal information, her tax ID number here and everything else. And then the CTR, is basically just like you normally complete it. The information in Part 2 is very straightforward. So that is how you complete a CTR for a sole proprietorship.
That's all I have for you today.