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The Corporate Transparency Act (signed into law on 1/1/21) expanded anti-money laundering laws and created new reporting requirements for certain companies doing business in the U.S. Beginning in 2024, many small businesses will be required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity.

Who Must File

Certain domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with the secretary of state (SOS) or similar office to create or register the entity. Corporations (including S corporations), LLCs, and other entities formed through the SOS are subject to the reporting requirements. As sole proprietorships, trusts, and general partnerships do not require the filing of a formal document with the SOS, they generally are not considered a reporting company hence will not have a filing requirement. Foreign companies are required to file reports if they are registered with the SOS or similar office under state law.

Some companies will be exempt from reporting as they are already required to report ownership information to a governmental authority. Large operating companies will also be exempt from the reporting requirement. A large operating company is any entity with (a) more than 20 full-time U.S. employees, (b) an operating presence at a physical office within the U.S., and (c) more than $5,000,000 of U.S.-sourced gross receipts reported on its prior year federal income tax return. If you meet these qualifications, you are not subject to the new reporting requirements. Other exceptions for inactive companies, etc., have been provided eliminating the need to report for those affected businesses.

What Information Must Be Provided

Beneficial ownership information (BOI) must be reported for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants. BOI includes an individual’s full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a nonexpired U.S. passport, state driver’s license, or other government-issued ID card. If the individual does not have any of those documents, then a nonexpired foreign passport can be used. An image of the document showing the unique ID number must also be included with the report.

Beneficial Owners

Two groups of individuals are considered beneficial owners of a reporting company: (1) any individual who exercises substantial control over the reporting company or (2) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company.

Individuals with substantial control are those with substantial influence over important decisions made by the reporting company. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be a considered a beneficial owner for reporting purposes.

Company Applicants

The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney). Company applicants must provide the same information that is required of beneficial owners, but only if the reporting company is formed or registered after 2023. Because of the difficulty in tracking down information about company applicants for reporting companies that have been in existence for a number of years, reporting companies formed or registered before 2024 do not have to supply BOI for their company applicants.

Important Filing Dates

For existing reporting companies created or registered before 2024, the initial report is due by 1/1/25. For reporting companies created or registered after 2023, the initial report is due 30 days after the entity’s creation or registration. FinCEN is in the process of creating a secure electronic filing system via its website and will begin accepting reports on 1/1/24. If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change. So, it is imperative that going forward you let us know as soon as possible of any changes in ownership or personnel with significant influence over business decisions. The penalties for willfully failing to file both initial and updated reports are steep—$500 per day that the report is late, up to $10,000, and imprisonment for up to two years.

DHJJ Can Help

Having said all this, the AICPA and other interested parties are lobbying for a delay in implementation, but for now, we will need to obtain certain information from you to fulfill the reporting requirements if you are a DHJJ Business Client. If FinCEN delays this, we will certainly let you know. If you would like to talk to a DHJJ CPA about reporting requirements for your business, contact us below.

This information was reproduced with permission from © 2023 Thomson Reuters/PPC. All rights reserved.

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