Compliance with the Corporate Transparency Act
As we step into 2024, a significant regulatory change is on the horizon that impacts corporations, limited liability companies (LLCs), limited partnerships, and similar entities. Newly formed entities are now required to file a report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), providing detailed information about their “beneficial owners”. This requirement, effective from January 1, 2024, also extends to existing entities, which have until January 1, 2025, to comply.
This initiative is part of the federal government’s intensified efforts to combat money laundering and tax evasion. Unfortunately, this new regulation introduces complex reporting obligations for most businesses. Non-compliance, especially willful failure to report or update changed information, carries severe consequences. These include daily fines up to $500 until the violation is resolved, and in cases of criminal charges, fines up to $10,000 and/or two years of imprisonment.
The definition of a “beneficial owner” is quite extensive, covering individuals who own more than 25% of the entity’s ownership interests or exercise substantial control over the company. This definition can encompass not only major shareholders, but also senior officers and board members involved in key business decisions. Given the hefty penalties, it is prudent to opt for overinclusion in reporting beneficial owners.
For entities established after January 1, 2024, there’s an additional requirement to furnish information about company applicants – those responsible for filing formation or registration documents. Required details for beneficial owners and company applicants include their legal name, residential address, date of birth, and a unique identifier number from an official document like a passport or driver’s license. Furthermore, a copy of these documents must be provided to FinCEN.
Existing entities must comply with these requirements by January 1, 2025. For entities formed in 2024, the deadline is within 90 days of formation or registration. For entities formed in 2025 and after, the deadline is within 60 days of formation or registration.
It is critical to report any changes in the beneficial ownership information within 30 days. Failure to do so could result in the stringent penalties mentioned earlier. Changes that need reporting include modifications in a beneficial owner’s address or name, updated passport numbers, or renewed driver’s licenses.
Beginning in June 2024, Reason Tax Group will reach out to all clients in existence prior to January 1, 2024 to ensure you are in compliance with the new rules.
If you have formed a new entity since January 1, 2024, either let us know right away, or file for yourself at www.fincen.gov/boi.
Finally, FinCEN has recently posted a public service announcement that there have been fraudulent attempts to solicit information from individuals and entities who may be subject to reporting. We caution you to be very careful and not respond to any notices you may receive. FinCEN does not send unsolicited requests.
The financial professionals at Reason Financial are registered representatives with and securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Other advisory services offered through Merit Financial Group, LLC an SEC Registered Investment Advisor. Merit Financial Group and Reason Financial are separate entities from LPL Financial. Tax related services offered through Reason Tax Group. Reason Tax Group is a separate legal entity and not affiliated with LPL Financial. LPL Financial does not offer tax advice or tax related services. Steven W. Pollock CA Insurance Lic# OE98073, Sean P. Storck CA Insurance Lic# OF25995.
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