A new federal reporting requirement affecting many business owners goes into effect on January 1, 2024.
In September 2022, the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the federal Corporate Transparency Act (CTA) as a component of the Anti-Money Laundering Act of 2020. Under the CTA, the FinCEN is required to establish and maintain a national registry of “beneficial owners” of certain entities deemed to be "reporting companies," with new filing requirements starting in January 2024. The intent of the CTA is to expose shell companies engaged in illicit activity such as money laundering, the financing of terrorism, human and drug trafficking, and securities fraud.
What entities and individuals are required to report?
The CTA requires certain "reporting companies" to file a Beneficial Ownership Information (BOI) report with FinCEN. A “reporting company” is broadly defined to include any corporation, LLC, or other entity created by the filing of a document with a domestic secretary of state or similar office or formed under the laws of a foreign country and registered to do business in the United States. There are, however, numerous exemptions, including:
- Entities already otherwise regulated or that have reporting requirements, such as certain banks and other financial institutions, as well as investment advisors and securities brokers;
- Any large entities that: (i) employ more than 20 employees on a full-time basis in the United States; (ii) filed Federal Income Tax returns in the US in the previous year demonstrating more than $5,000,000 in gross receipts or sales; and (iii) have an operating presence at a physical office in the US;
- Accounting firms registered under Section 102 of the Sarbanes-Oxley Act of 2022;
- Tax-exempt entities and their subsidiaries; and
- Certain inactive entities.
The “beneficial owners” of the company and the “company applicants” of the entity must each also file a BOI report. A “beneficial owner” is an individual who directly or indirectly either: (i) exercises substantial control over the entity, or (ii) owns or controls at least 25% of the ownership interests of the entity. The “company applicant” is the individual who (i) files the document that creates the entity, or (ii) is responsible for overseeing the filing of the incorporation documents. Those responsible for filing a BOI report will disclose their name, birthdate, address, and some form of unique identifying number (e.g., driver's license image and number).
If your company is a reporting company and must file a BOI report, what’s next?
Newly-formed companies that fall within the parameters noted above that are formed on or after January 1, 2024, must file their BOI report(s) and submit the required information to FinCEN within 30 days of creation. Companies formed prior to January 1, 2024, have until December 31, 2024 to file their BOI report(s). Any changes to a previously filed BOI report must be made within 30 days of the change. If you move, you must update your address through FinCEN’s website within 30 days of moving.
Failure to report complete or updated information to FinCEN may result in civil penalties of $500 for each day the violation continues or isn’t remedied, up to $10,000 in fines, and imprisonment up to two years. Additional details are available in the FinCEN’s Small Entity Compliance Guide.
RCO Law can help navigate this new law for business owners.
To learn more about the Firm's Business and Corporate Practice Group, go to rcolaw.com, contact Attorney Marissa Fitzpatrick, the author of this article for more information, or call 419-249-7900 for immediate assistance.