New legislation has gone into effect as of Jan. 1, 2024, that will impact millions of small businesses. We want to make sure you understand the basic requirements of the new law in order to stay in compliance and avoid potential penalties.
The Corporate Transparency Act (CTA) requires both domestic and foreign entities that meet certain criteria to report their “beneficial ownership” information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. Entities include new and existing small corporations and limited liability companies.
According to the CTA, you qualify as a beneficial owner if you “exercise substantial control over a corporation or limited liability company, own 25% or more of the interest in a corporation or limited liability company, or receive substantial economic benefits from the assets of a corporation or limited liability company.”
The purpose of this new law is to compel the disclosure of corporate ownership information in an effort to help prevent tax fraud, money laundering and the financing of terrorism, and protect the integrity of national security and the U.S. economy.
Entities formed before Jan. 1, 2024, must file a Beneficial Ownership Information Report (BOIR) by Jan. 1, 2025. Those established after Jan. 1, 2024 have 90 days from the date of formation to file. Businesses formed after Jan. 1, 2025, will have only 30 days in which to file. Also, if there is any change to the required information about the business or its beneficial owners in a BOIR that the business filed, the business must file an updated report no later than 30 days after the date of the change.
Exceptions include tax-exempt entities, companies in government-regulated industries that already disclose beneficial ownership as part of their federal or state reporting requirements. Large operating companies are also exempt, if they: reported more than $5 million of revenue on their most recent year’s taxes, have at least 20 full-time U.S. employees, and have a physical operating location in the United States.
Business entities that do not file a BOIR by the appropriate deadline, provide false information in their report, or do not file an updated report in a timely manner, will be faced with civil and criminal action — including hefty fines of up to $500 per day, a prison term of up to two years, or both.
There is no fee to file on FinCen’s website, and detailed online filing instructions are provided at www.fincen.gov/boi.
What You’ll Need to Report
In terms of the details required in the BOIR, all companies must include their legal name and trademarks, as well as their main U.S. address. In the case of foreign entities, this should be their U.S.-based operations. You’ll also need to include your taxpayer identification number and the state or jurisdiction where the business was formed or registered.
Some of the BOIR reporting requirements are dependent on the date your business was established. Entities registered after Jan. 1, 2024, must provide information about the business, their beneficial owners, and their company applicants — including the owners’ and applicants’ names, addresses, birth dates and a copy of their IDs, such as a driver’s license or passport. Companies established before Jan. 1, 2024, are not required to include applicant information.
While there is no recurring or annual reporting requirement at this time, if you make changes to your company’s ownership structure, you may be required to update your BOIR filings.
Beneficial ownership reporting is not part of tax reporting, and DMLO will not be filing BOIRs on behalf of our clients. Therefore, we recommend that you consult an attorney to assist with your filing. The online filing process is simple and straightforward, so companies with one or two owners may be able to file successfully without outside assistance.
Whether you file on your own or with the help of legal counsel, we recommend that you review your operating agreements, and put processes into place to monitor any future changes in beneficial ownership that may constitute reportable changes to FinCen. We also recommend you keep the ownership information you have on file current at all times, including mailing addresses for each owner and their unique identification numbers.
With this new law in effect, we want to make sure you have everything you need to comply by your respective filing deadline. Please consult your attorney with additional questions.