In a significant move toward enhancing financial transparency and combating illicit activities, the United States has introduced the Corporate Transparency Act (CTA). This landmark legislation is meant to curb money laundering, terrorist financing, and other financial crimes by requiring certain companies to disclose their beneficial ownership information. Unfortunately, what that means for many businesses is that FinCEN reporting requirements are significantly changing.
There will be several things to know to ensure you file and report properly to stay in compliance. While there are some exemptions, it is important to be familiar with the new reporting requirements that went into effect January 1, 2024.
Administered by the Financial Crimes Enforcement Network (FinCEN), the new reporting requirements have far-reaching implications for businesses. In this blog, we’ll share some of the key details of FinCEN reporting under the Corporate Transparency Act and how your business might be impacted.
What Is the Corporate Transparency Act?
The Corporate Transparency Act, also known as CTA, was enacted in 2021. This act intends to help reduce and fight against financial crimes. It focuses on addressing the misuse of anonymous shell companies by requiring them to disclose their beneficial owners to FinCEN. This information will be maintained in a secure, non-public database accessible only by designated government authorities.
The act encompasses these details:
- Beneficial Ownership disclosures (BOI)
- Scope of applicable businesses
- A new FinCEN database for data collection
- Reporting timeline requirements
- Privacy and security safeguards
- Penalties for non-compliance
While the act was made official in 2021, businesses have been given time to prepare for the changes. The rules of the act officially went into effect on January 1, 2024. Reporting companies have until January 1, 2025, to comply with reporting.
Who Is Affected by the FinCEN Reporting Requirements?
The reporting requirements of the CTA apply to certain corporations, limited liability companies (LLCs), and similar entities. The Act encompasses businesses within the United States as well as foreign entities registered for business in the US. Certain financial institutions, publicly traded companies, and specific entities have exemptions from reporting.
The exemptions are very specific. Many of those who are exempt already follow robust reporting and disclosure requirements. The BOI reports will be used for government purposes only and will not be public information. Law enforcement and security agencies through the government will utilize this data to work against financial crimes.
The report specifically wants beneficial owner information. Beneficial owners are individuals who directly or indirectly control the company, benefit from the company, and make decisions about operations or management.
What Information Must You Report?
Companies subject to the Corporate Transparency Act must report specific information about their beneficial owners.
The details requiring reporting include:
- Names
- Addresses
- Dates of Birth
- Identification Numbers
- Identification Images
These details will be required for all beneficial business owners who must report. There are no filing fees associated with the reporting process. It simply must be done within a specified timeframe.
Timeline for Reporting
The Corporate Transparency Act establishes a timeline for reporting. Newly formed entities must submit beneficial ownership information to FinCEN at the time of formation. Existing entities have a two-year grace period to comply with the reporting requirements. However, certain events, such as changes in beneficial ownership, may trigger additional reporting obligations.
At this time, businesses are required to complete their BOI reporting by the end of 2024 to comply.
Privacy and Security Considerations
As this act has rolled out and reporting has become clearer, there has been a lot of pushback about data privacy. Remember that this data will only be accessed by the appropriate government authorities. It will never be made public, and strict security regulations will be enforced for all associated data.
FinCEN has strict safeguards in place to protect all data collected. Specific authority will be required for any access to the database and will only be available to government agencies involved with national security and law enforcement.
Understanding the Penalties for Non-Compliance
Non-compliance with CTA could result in significant penalties. Entities failing to submit accurate and timely reports may face civil and criminal penalties, including fines and imprisonment. Understanding and adhering to the reporting requirements is crucial to avoid legal consequences.
How Will FinCEN Reporting Requirements Impact Business Operations?
The implementation of the Corporate Transparency Act has implications for how businesses operate and structure their ownership. Companies subject to the Act must proactively identify and report their beneficial owners, ensuring compliance with the new regulatory framework. While it will be an extra step for reporting compliance, it is not unreasonable.
We can certainly understand the concept behind this act, despite the fact that it feels very invasive to businesses.
Common Questions About BOI Report Filing Requirements
We have seen many common questions related to whether or not BOI report filing will be required for your business.
These are the most common questions about who will have to file, and yes, filing is required in these aspects:
- Rental property held in an LLC
- If you hold 10 LLCs, each LLC must file a BOI
- BOIs must be updated if a beneficial owner changes within the company
And these are the scenarios in which you won’t have to file:
- Self-employment businesses not registered with the Secretary of State.
- Social security numbers
- Minor children as beneficiaries
The report only requires the data we mentioned above for the beneficial owners. Your social security number will not be required, but an ID number and image are required. At this time it is unclear whether public accountants, enrolled agents, and attorneys must be involved or should handle the filing process.
Be Aware and Prepared for FinCEN Reporting Requirements
The Corporate Transparency Act marks a major step forward in enhancing transparency in corporate ownership and combating financial crimes. It is still new, and there are many uncertain details to be aware of. As businesses navigate the reporting requirements established by FinCEN, it is essential to stay informed, understand the implications, and take the necessary steps to comply with the new regulatory landscape.
We are doing our best to share pertinent information with our clients and the general public. Contact us today for additional information, and stay in the know through the FinCEN website.
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