Many of our clients have, or put in place, various business entities. Effective, January 1, 2024, the Corporate Transparency Act’s (CTA) mandatory entity information reporting with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) will impact numerous LLCs, corporations, and any other business entities created in or registered to do business in the United States. Noncompliance with the reporting requirements results in a fine of $500/a day, up to $10,000, and up to two years imprisonment.
The Anti-Money Laundering Act of 2020 created the CTA primarily in an attempt to address money laundering and terrorist financing. Congress believes by increasing the transparency of entity information, this will prevent criminals from hiding cash and property in the United States. Therefore, all “beneficial owners” and “company applicants” are required to report their legal name, birthdate, address, an ID number, and a photograph of the ID used. This information is in addition to: the entity’s legal name, trade name and d/b/a name, address, location where it was formed/registered, and taxpayer identification number. All reported information will be stored in an electronic database accessible by authorized government authorities and financial institutions, not the public.
A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the entity; including senior officers (president, CEO, COO, CFO, and general counsel) and employees with the ability to make important decisions on behalf of the entity. Additionally, a beneficial owner is an individual who, directly or indirectly, owns or controls at least 25% of the entity’s ownership interests. Under the CTA, trusts must report when it owns or controls at least 25% of an entity, or a trustee exercises substantial control over an entity. This includes a trust that owns at least 25% interest in: a family limited partnership, closely held business, or even a vacation home held in an LLC.
For entities created or registered after January 1, 2024, two individuals must report as company applicants: 1) the individual who directly files the document(s) that creates or first registers the entity, and 2) the individual who is primarily responsible for directing or controlling the filing of the relevant document(s).
Entities created or registered before January 1, 2024, will be required to file their beneficial owner and entity information by January 1, 2025. Entities created or registered after January 1, 2024, will be required to file their company applicant, beneficial owner, and entity information within 30 calendar days after receiving actual or public notice the entity has been created.
The CTA requires continued reporting when there is any change to the previously reported information. The entity management must report any changes within 30 days of the change happening, or face fines.
Entities that are excluded from mandatory reporting are: publicly traded corporations; SEC reporting entities; and those entities that have more than 20 employees, have more than $5,000,000 in gross receipts, and maintain a physical presence in the United States.
Although the FinCEN will not accept reporting before January 1, 2024, it is important to take note of the deadlines, if applicable to your business entity, to avoid potential fines.
If you have questions about how you and your business may be impacted by the Corporate Transparency Act, we invite you attend our FREE webinar on December 19th.