If your business is subject to the Corporate Transparency Act, you will need to file a beneficial owner report with FinCEN.
Beginning on January 1, 2024, the Corporate Transparency Act (CTA), a law passed in 2021, will implement uniform beneficial ownership information reporting requirements for corporations, limited liability companies and other business entities that were created in or are registered to do business in the United States. The CTA mandates that certain information about the business’ owners must be provided to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Significant penalties exist for noncompliance.
This law builds on the Anti-Money Laundering Act of 2020, which was implemented to crackdown on illegal activity like corruption, money laundering, terrorist financing and tax fraud. It is believed that increasing the transparency of owner information will prevent criminals from hiding their illegal gains, cash and/or property in the United States.
If your business is subject to the CTA, you will need to file a beneficial owner report with FinCEN. This report will include each beneficial owner’s full legal name, birth date, address and an identifying number from a driver’s license, passport or other approved legal document, as well as a photograph of the document displaying the identifying number. In addition to the owner information, you will also need to provide your company’s legal name and any trade name/dba (doing business as), address, jurisdiction where it was formed or first registered and its taxpayer identification number. Once reported, FinCEN will include this information in a database for use by authorized government authorities and financial institutions. The database will not be publicly accessible.
While the CTA was passed in 2021, it did not go into effect right away. Congress wanted to give FinCEN time to write regulations governing how the law should be applied and to give businesses a “heads-up” about the new law. Almost two years later, FinCEN issued their final rule in September 2022.
The final rule and its regulations will go into effect as early as January 1, 2024. Violations of the CTA and noncompliance with reporting requirements can have severe consequences (a $500-a-day penalty, up to $10,000, and up to two years’ imprisonment), so it is important to comply.
Who Is Required to File?
Corporations, limited liability companies and other business entities that were created by a filing with a secretary of state or a similar office to create the entity or, for foreign companies, a registration to do business in the United States.
The CTA contains 23 exemptions for a majority of large companies, such as publicly traded corporations and businesses that the federal government heavily regulates. The exemption also includes any business that meets all of the following criteria:
- Employs more than 20 employees;
- Reports more than $5 million in gross receipts; and
- Maintains a physical presence at a business office in the United States.
What to File?
If you do not meet exemptions above, a reporting company will be required to provide:
- Its legal name and any trade name or dba;
- Its address;
- The jurisdiction in which it was formed or first registered, depending on whether it’s a U.S. or foreign company; and
- Its taxpayer identification number.
For each company’s beneficial owners and each company applicant, the following information with respect to individual owners will also be required:
- Legal name;
- Address (in most cases, a home address); and
- An identifying number from a driver’s license, passport or other approved document for each individual, as well as an image of the document that the number is from.
There can be up to two individuals who qualify as company applicants:
- The individual who directly files the document that creates, or first registers, the reporting company; and
- The individual that is primarily responsible for directing or controlling the filing of the relevant document.
Businesses are only required to report company applicants if they are created or registered on or after January 1, 2024.
When Do You Need to File?
If your company is created or registered before January 1, 2024, you are required to file by January 1, 2025. While the report form is not yet available, you will file electronically through a secure filing system available via FinCEN’s website. As of this writing, this system is being developed and will be available before a report must be filed. Otherwise, for a company registered or created subsequent to January 1, 2024, file within 30 calendar days of receiving actual or public notice that your company has been created, or upon receipt from your state’s secretary of state or similar office that your company was created or registered, whichever is earlier. FinCEN has reported that it will accept reports electronically beginning January 1, 2024.
While no changes or modifications are anticipated before 2024, a consultation may ensure you are in compliance on this important law that will impact countless businesses and avoid potentially severe penalties for noncompliance.
As with any new piece of legislation, careful analysis is required to avoid the imposition of potential onerous penalties. With the increase in fraud schemes, offshore money laundering and other illegal activities, the CTA is another implement in the government’s tool box to crackdown on such activities. Refreshingly, there is time to comply. However, it would be prudent to act sooner in 2024 rather than later to avoid oversight of this new reporting requirement. Our practitioners are available to assist.
For More Information
If you would like more information about this topic or your own unique situation, please contact Steven M. Packer, Joseph E. Schuler or any of the practitioners in the Tax Accounting Group. For information about other pertinent tax topics, please visit our publications page.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.