Beginning January 1, 2024, the Corporate Transparency Act requires certain businesses to submit an online report to the Financial Crimes Enforcement Network (FinCEN), an arm of the U.S. Treasury Department.
The report will require affected businesses to provide personal information about their legal entities, beneficial owners, and company applicants. The purpose behind requiring this information, according to FinCEN, is “to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.”
- Who is required to file a report? Only “reporting companies” are required to report information to FinCEN. Reporting companies include:
- Corporations
- Limited liability companies (LLCs)
- Limited partnerships (LPs), and
- Other entities created in the United States by filing a document with a secretary of state or similar office under the law of an Indian tribe.
- Are foreign businesses required to file a report? Yes, if they are formed under the laws of a foreign country and are registered to do business in any U.S. state or Indian tribe. This includes foreign corporations and foreign LLCs.
- Are there any exemptions from reporting? Yes, there are 23 exemptions from the reporting requirement, including the following:
- Inactive entities owned by U.S. persons and that were in existence before January 1, 2020
- Publicly traded companies
- Investment companies or investment advisors
- Brokers or dealers in securities
- Venture capital fund advisors
- Public accounting firms
- Pooled investment vehicles
- Tax-exempt entities
- Large operating companies (LOCs), which meet the following requirements:
- They have an operating presence at a physical office within the United States
- They have more than 20 full-time employees (i.e., employees who work at least 30 hours/week or 130 hours/month) working in the United States, and
- They have filed for the previous year a U.S. Federal income tax or information return reporting more than $5 million in U.S.-source gross receipts or sales (net of returns and allowances).
- Subsidiaries of exempt companies that are controlled or wholly owned, directly or indirectly, by certain exempt entities.
- Do exempt entities need to file a report? No, but if an entity previously filed a report and subsequently becomes exempt, then it needs to file a report indicating that it is no longer a reporting company. See FAQ L.5 & FAQ J.1.
- When is reporting required? Reporting starts January 1, 2024, and nothing can be filed before that date.
- Entities created before January 1, 2024 have until January 1, 2025, to file a report.
- Entities created on or after January 1, 2024 and before January 1, 2025 have 90 days after creation or registration to file a report (note the 90-day period, which was finalized on November 29, 2023, replaces the prior 30-day period).
- Entities created on or after January 1, 2025 have 30 days after creation or registration to file a report.
- Where do I file a report? The information must be filed electronically through FinCEN’s website, and the system will provide a confirmation of receipt after the report is filed.
- What beneficial ownership information do I have to report? Reporting companies are required to report the name, date of birth, residential address, and driver’s license or passport number (and provide a copy of such document) of their beneficial owners. See FAQ F.3. A “beneficial owner” is an individual who either directly or indirectly:
- Exercises substantial control (see FAQ D.2) over the reporting company, or
- Owns or controls at least 25% of the reporting company’s ownership interests (see FAQ D.4).
- This includes (i) equity, stock, or voting rights, (ii) capital or profits interests, (iii) convertible instruments, (iv) options or certain privileges, and (v) other instruments, contracts, arrangements, understandings, relationships, or mechanisms used to establish ownership.
- Note that beneficial ownership information is required only for beneficial owners as of the time of filing. See FAQ G.4. Updated reports are required within 30 days of any change to the information about the legal entity or its beneficial owners. See FAQ H.1.
- Also note that an individual can choose to obtain his or her own FinCEN identifier and then provide such identifier to the reporting company instead of his or her personal information. See FAQ M.1., FAQ M.2, & FAQ M.3.
- Will the reported beneficial ownership information become public? No. FinCEN will store the information in a secure, non-public database and it will be made available only to certain government agencies and foreign officials that submit a request to FinCEN related to national security, intelligence, or law enforcement. See FAQ #A.3.
- Is there any other information that is required to be reported? Yes, reporting companies are required to report information about the legal entity itself, and if the entity was formed on or after January 1, 2024, then it is also required to report information for up to two individuals that either formed the entity or filed the report with FinCEN. See FAQ E.1, FAQ F.1 & FAQ F.4.
- Can I engage a lawyer or accountant to assist me with reporting? Yes, even though FinCEN expects many, if not most, businesses will be able to submit the information on their own. See FAQ #B.7. Reporting companies can also hire a third-party service provider to submit information to FinCEN on their behalf. See FAQ N.1.
- Are there penalties for failure to file a report? Yes, there are civil and criminal penalties that may apply. See FAQ K.1.
The rules governing beneficial owner reporting are lengthy and time-consuming to read straight through, but we expect reporting to be a fairly simple and straightforward process for most businesses. We also expect that over time, the reporting process will become integrated with the entity formation process.
For more information, you can also review FinCEN’s beneficial ownership reporting webpage, its collection of reference materials, its frequently updated list of FAQs, its 50-page small entity compliance guide, its 2-page introductory guide, or its 55-second YouTube video.
Contact Us
For more information on this topic, please contact a member of Withum’s Business Tax Services Team.
