Are you a “beneficial owner” of a small business or LLC? If so, get ready: 2024 will bring the Corporate Transparency Act (CTA) and its periodic reporting requirements to combat both domestic and international money-laundering, terrorism funding, tax evasion and other financial crimes.

According to https://www.fincen.gov/boi-faqs, another filing, like a tax return, will be required of many foreign and domestic businesses registered to do business in the US starting in 2024, including:

• any business with less than 20 employees or $5M in gross annual revenue, including corporations, with exceptions for non-profits, some banks and other businesses already regulated by FinCEN
• LLC’s
• Limited Partnerships

This report will not be filed with the IRS. It will be filed with the Financial Crimes Enforcement Network of the Department of the Treasury. The form has yet to be developed. The CTA is part of the Anti-Money Laundering Act of 2020. This kind of reporting has been used in other parts of the world, like Europe, for many years, to combat illegal activities, including tax evasion.

What gets filed? A Beneficial Owner Report. Again, we don’t have the form yet but it will disclose the company name, its beneficial owners and information related to both. It will require disclosure of personal information identifying beneficial owners not usually disclosed on the documentation used to create and register entities with state or federal agencies.

According to the FinCEN website:

A reporting company will have to report:

• Its legal name;
• Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
• The current street address of its principal place of business if that address is in the United States (for example, a domestic reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
• Its jurisdiction of formation or registration; and
• Its Taxpayer Identification Number.

For each individual who is a beneficial owner or a company applicant, a reporting company will have to report:

• The individual’s name, date of birth, and address;
• A unique identifying number from an acceptable identification document; and
• The name of the state or jurisdiction that issued the identification document.

A list of acceptable identification documents includes non-expired driver’s license or state ID or US passport.

What’s a beneficial owner? Any individual who either directly or indirectly exercises substantial control over the company or owns or controls at least 25% of the ownership interest of the company.

The report would not apply to most trusts. However, entities formed as corporations, limited partnerships and LLC’s (Limited Liability Companies) would be included in the filing requirement, subject to the exceptions noted on the website.

Initial reports for companies in existence on January 1, 2024 must be filed by January 1, 2025. Thereafter, new entities must file within 30 days of their creation. A report is also required within 30 days of any change in beneficial ownership, change in driver’s license number, passport number or other identifying document of a beneficial owner.

Rules are being developed to restrict how this information is accessed by law enforcement, recognizing the sensitive personal nature of the reported information.

Many lawyers who assist clients with the creation of these entities are working to build the systems to include the filings with the formation process. Anyone who believes they may be a beneficial owner of an entity required to report should contact their lawyer. There are penalties for failure to file. According to an article in Forbes, penalties for non-compliance include $500 a day up to $10,000, and up to 2 years in jail.[1]

Anyone who owns an interest in one of these types of entitles – in other words, are a corporation’s shareholder or member of an LLC or may be creating one, should check with their lawyer to see if they are required to file such a report.

[1] https://www.forbes.com/sites/matthewerskine/2023/01/17/get-ready-for-the-corporate-transparency-act/?sh=1a982e6351f7