******SIGNIFICANT NEW LAW – ACTION REQUIRED******
In January of 2021, Congress enacted the Corporate Transparency Act, (the “Act”). The Act requires most small businesses to file a report to the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of Treasury, disclosing certain information of small business entities. The Act goes into effect beginning January 1, 2024. The purpose of the Act is to provide transparency regarding ownership of legal entities to prevent money laundering, tax fraud and other illegal activities. This letter summarizes the basics of the Act, it s requirements, and how it may potentially impact you in 2024 and beyond.
Entities Required to Report
Any domestic or foreign entity that is a corporation, limited liability company, or created through or registered to do business by the filing of a document with a secretary of state or other similar state office is deemed a “reporting company.” Unless a “reporting company” is exempt, filing a complete and accurate report with FinCEN is required. There are twenty-three limited exemptions, each being narrowly defined and regulated under other federal laws. Whether an entity qualifies as exempt should be carefully examined before exemption status is assumed.
Reporting Responsibility
Every individual who is a “beneficial owner” of a reporting company and every individual who is a “company applicant” to a reporting company is required to submit certain identifying information to FinCEN.
Beneficial Owners
A beneficial owner is an individual who directly or indirectly either exercises “substantial control” or owns at least 25 percent of the “ownership interest” of a reporting company. Substantial control and ownership interest are defined under the Act and can vary from entity to entity. Therefore, examining a reporting company’s structure and formation will be necessary to determine who qualifies as a beneficial owner and thus information will need to be collected.
Company Applicants
In simple terms, a company applicant is the individual who files the document with the secretary of state or other similar state office that forms or registers an entity. A company applicant is also an individual who is primarily responsible for directing or controlling such a filing if more than one individual is involved. But note, company applicants will only need to be reported for entities formed on or after January 1, 2024.
Information Required to be Reported
Entities
Entities will need to report the following information:
· Full legal name of the company, including tradenames and DBAs;
· A complete current address showing the principal place of business;
· The state of formation or state of first registration; and
· The Internal Revenue Service (IRS) issued Taxpayer Identification Number (TIN).
Individuals
Beneficial owners and company applicants will need to report the following information:
· Full legal name;
· Date of birth;
· Complete current address;
· A unique identifying number along with the issuing jurisdiction; and
· A photocopy of the document containing the unique identifying number.
FinCEN Identifiers
Individuals who do not wish to provide the required information directly to a reporting company can obtain a FinCEN Identifier beginning January 1, 2024. The information listed above will need to be reported directly to FinCEN and in exchange, a unique identifying number will be issued. Reporting companies can then report FinCEN Identifiers in lieu of the individual’s identifying information and documentation.
Deadlines
The effective date of the Act is January 1, 2024. Entities existing as of December 31, 2023, must file the required report with FinCEN by January 1, 2025. Entities formed in 2024 will have 90 days to file and entities formed after January 1, 2025 will have 30 days to file. Additionally, any change to information of an entity or beneficial owner, such as an address change, is required to be reported within 30 days of such change in information.
Reporting Violations
Willfully providing false or fraudulent information to FinCEN or willfully failing to report complete or updated information to FinCEN in accordance with the Act will result in a violation of the law. Civil penalties of up to $10,000 accruing at $500 per day, imprisonment for no more than 2 years, or both, are the potential penalties for noncompliance.
Contact the Penner Lowe Law Group, LLC if Assistance is Needed
This is a very brief summary of the new Act. The details, including definitions, procedures, and exemptions are too numerous to fit into this newsletter. Pursuant to the Act, it is the responsibility of the reporting company to file the required reports.
Penner Lowe Law Group, LLC, is here to help if requested, but we will not take any action to file reports with FinCEN for any of your entities unless you contact us for assistance directly.
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