There is a new law effective January 1, 2024 that might require you to disclose information to a federal agency that you have not heard about yet. You need to find out whether you fall under one of the definitions of a reporting company, beneficial owner, or company applicant. Reading, hearing, and learning about this new law will help you understand if you fall within these definitions. Once you realize that this new federal law applies to you, you will need to report information yourself or hire a professional to save you the time, effort, and frustration of doing so yourself.
If you are reading this, you already know that I am referring to the Corporate Transparency Act (also referred to as “CTA”). The United States House of Representatives and the Senate passed the CTA because the lack of uniform beneficial ownership information reporting requirements at the time of entity formation or ownership change hindered the ability of law enforcement to swiftly investigate those entities created and used to hide ownership for illicit purposes. This lack of transparency created opportunities for criminals, terrorists, and other illicit actors to remain anonymous while facilitating fraud, drug trafficking, corruption, tax evasion, organized crime, or other illicit activity through legal entities created in the United States. Many people do not know that President Donald Trump actually vetoed this law, but the Congress overrode his veto. Something that we are now realizing is that Congress’ attempt to catch money launderers and terrorists actually creates a new headache for law abiding small business owners and families who use business entities in their estate planning.
One thing that money launderers, terrorists, small business owners, and families who use business entities for estate planning have in common is that their LLCs, limited partnerships, and corporations are not receiving a lot of gross receipts through the entity itself. Entities that receive more than $5 Million dollars in gross receipts annually do not need to report information to the Financial Crimes Enforcement Network (also known as FinCEN). The government accountability office found that most money launderers and terrorists moved a lot of money through their business entities but most of the money was not reported as gross receipt income to the IRS. Now that we know why business owners need to report information to the FinCEN, you need to know what information the CTA requires to be reported.
The CTA requires reporting companies to report information about:
- company’s legal name, and any trade name or “doing business as” name
- street address of the principal place of business
- jurisdiction in which the business was formed and
- tax identification number.
The CTA also requires beneficial owners to report:
- full legal name
- date of birth
- current address and
- unique identification number from an “acceptable identification document.
There is a third category of individuals who must report the same information as owners to FinCEN: individuals who exercise substantial control. You are probably wondering what substantial control means. An individual exercises substantial control if:
- The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
- The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
- The individual is an important decision-maker for the reporting company. Important decisions include decisions about a reporting company’s business, finances, and structure.
- The individual has any other form of substantial control over the reporting company.
Reporting companies existing prior to 2024 and their owners, and individuals exercising substantial control over decisions must report this information before January 1, 2025. Reporting companies and their owners, and individuals exercising substantial control over decisions must report this information within 90 days of creating an entity between January 1, 2024 and December 31, 2024. Entities created on January 1, 2025 and after must report information within 30 days. Those who fail to report will be facing fines and potentially jail time.
Individuals can be fined or jailed for willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information. The civil penalties are up to $500 for each day that the violation continues. The criminal penalties are up to two years imprisonment and a fine of up to $10,000.
In order to avoid fines and jail time, you can report information yourself on the FinCEN website or you can hire a professional. If your attorney has not told you about this, you need a new attorney. If your accountant, bookkeeper or tax preparer has not told you about this, get a new one. Just in case you are wondering, Marquardt Law Firm, P.C. can quickly and inexpensively report information for you to FinCEN. Call 210-530-4278 or chat on MarquardtLawFirm.com to let us know you want us to report to FinCEN for you, and we will send you a questionnaire and a link to pay. Statistics show that it will take you up to three hours to figure out how to do this on your own.