As the clock ticks towards the January 1, 2025 deadline, many US businesses are just beginning to act on the Financial Crimes Enforcement Network’s (FinCEN) requirement to disclose the beneficial owners of companies, along with identifying key controlling individuals to be compliance with the Corporate Transparency Act.
The Corporate Transparency Act was enacted to curb illegal activities (including tax evasion, money laundering, and terrorist funding), seeks to remove anonymity, and create the first federal-level database of US entities and their owners.
It is estimated that 32 million partnerships, limited liability companies (LLC), corporations, and other similar state-formed entities are required to file a Beneficial Ownership Information Report (BOIR) or face a steep civil penalty of $591 per day, along with an additional $10,000 criminal fine and jail time for willful non-compliance.
Despite the fast-approaching deadline and penalties, a worrying number of businesses have yet to file the required form with the FinCEN.
Who Must File the Beneficial Ownership Forms
Any entity formed by filing documents with the Secretary of State is considered a reporting company for the purpose of this bill. The definition of ‘Beneficial Owner’ is one that is often confused with the ‘owners’ of an affected entity. FinCEN defines ‘Beneficial Owner’ on two prongs:
- Any individual that has 25% or more ownership interest of a reporting company, or,
- Any individual that exercises “Substantial Control” over a reporting company
Under the Corporate Transparency Act, "substantial control" includes individuals who hold executive positions (like CEO or CFO), have authority over major business decisions, or can appoint and remove key personnel. It also covers anyone with significant influence over the company's policies or operations, even without an official title or ownership stake.
We will note, that while trusts are mainly exempt from the definition of “reporting company,” substantial control can extend to key figures in trust arrangements who can exhibit substantial control over LLC interests held in the trust. This prong is aimed to ensure that those with real control over an entity are disclosed for transparency purposes.
Next Steps and Considerations
To be compliant, it’s as straightforward as filing a one-time form with FinCEN which asks for name, date of birth, address, and the identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document. The company entity will also submit information (name and address).
Given the complexities and potential consequences of non-compliance, now is the time to consult with your financial advisor and/or legal team. For many, this may be an ideal time to engage in a broader review of your business's financial strategy. While complex cases will require an attorney review to determine who requires disclosure, your financial advisor can provide educational oversight into how these new requirements fit into the larger picture of financial planning and tax strategies.
As we navigate a unique time in the US tax landscape, professional advice is key to navigating the coming changes. Whether you're focused on minimizing future risks, reducing taxes with year-end strategies, or ensuring your business stays in good standing with regulatory bodies, the looming December 31st deadline serves as a stark reminder that business owners must act quickly. Don’t wait until the last minute to ensure your compliance with the Corporate Transparency Act!
Source: Fincen.gov
Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.
