We told you this requirement was coming. We sounded the alarm in 2019 and then again in 2021.

But, as of yesterday¿the rules are now to be enforced.  As of 1 January 2024, businesses will have to register with the feds, to comply with the Corporate Transparency Act.  (It is a component of the National Defense Act, FY 21.)  Beneficial ownership of businesses (about 33 million of them) that operate in the US will have to be disclosed.  The goal is to obviate money laundering, terrorism financing, and other sorts of nefarious acts.

 

This is not a tax code issue; it is part of the Bank Secrecy Act.  So, we don’t file these reports with the IRS, but with FinCEN (Financial Crimes Enforcement Network), a unit of the Department of Treasury. 

Who must report?

Business entities within the US and elsewhere are targets.  Domestic entities that are corporations, limited liability companies (LLCs), and any other entity created by filing documentation with the secretary of state (or similar office) or an Indian tribe.

Foreign entities that are corporations, LLCs, or similar entities (even if formed outside the US), but are registered to do business in any state or tribal jurisdiction (by filing those documents with the secretary of state or similar offices) are also subject to this regulation.

There are exemptions- 23 of them to be precise. Those exemptions include publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others.  Moreover, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

1. 1. Employ more than 20 people in the U.S.
   2. Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
   3. Be physically present in the U.S.

Who is a beneficial owner?

A beneficial owner is any individual who, directly or indirectly, either:

• Exercises “substantial control” over a reporting company
• Owns or controls at least 25 percent of the ownership interests of a reporting company

This means anyone that directs, determines or exercises substantial influence over important decisions of the reporting company is considered to be the beneficial owner. As such, any senior officers of the reporting company, regardless of formal title or even if they have no ownership interest in the reporting company. The detailed regulations in the CTA (see link in picture below) detail the terms “substantial control” and “ownership interest” further.

When is the due date?

The deadline depends on when an entity is registered or formed- and when a change in the beneficial owner (information or entity) occurs.

• New entities (created/registered in 2024) — must file within 90 days
• New entities (created/registered after 12/31/2024) — must file within 30 days
• Existing entities (created/registered before 1/1/24) — must file by 1/1/2025
• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days of said discovery or change.

What does the report include?

The following data is required:  full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).

The beneficial owners of the entity and for newly created entities are also required to be divulged.  Moreover, if another company files the form for the requisite entity, the reporting company data must also be included.  This includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

What is if I don’t do this?

Not the smartest idea.  There are penalties of $500 per day and up to $10,000 with up to two years of jail time.  And, this is a violation of both civil and criminal codes.

Please contact us to discuss your situation or if you wish us to effect your compliance.