Credit: Caliber Accounting & Tax, LLP*
Starting in 2024 newly-formed corporations, limited liability companies (LLCs), limited partnerships, and other entities that file formation papers with a state’s Secretary of State office (or similar government agency) must file a report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the entity’s “beneficial owners.” Entities in existence prior to January 1, 2024 must file an initial report by January 1, 2025 and subsequent updated reports as required.
Each company will be required to file its own report (i.e., a parent company may not file one report on behalf of a group of companies). There are exceptions to filing for companies in certain highly regulated industries, large operating companies (generally, those with 20 full-time U.S. employees or more, with a U.S. physical office, and with U.S. gross receipts over $5 million on its last U.S. federal income tax return), and inactive entities, among others. Entities that ceased to exist by formally dissolving with the appropriate state agencies prior to January 1, 2024 are not required to file beneficial ownership information reports, but reporting is required for entities that dissolve during 2024.
This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will impose burdensome reporting requirements on most businesses, and the willful failure to report information and timely update any changed information can result in significant fines of up to $500 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000 and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report. Generally, being unaware of the filing requirements or having difficulty in obtaining the reporting information is not expected to be an adequate defense against a willful failure to report.
Beneficial owners are broadly defined to include individuals who, directly or indirectly, either
- exercise substantial control over the reporting company, or
- owns or controls at least 25 percent of the entity’s ownership interests (with spouses’ ownership interests being combined in community property states, and constructive ownership may apply to further widen individuals required to report).
While this may seem to only impact a few significant owners, it can encompass many senior officers of the business as well as anyone who directs, determines or has substantial influence over important decisions made by the company (e.g., board members), even if they do not have any direct or indirect ownership. Given the severity of the fines, it may be safer to err on the side of over-inclusion rather than under-inclusion.
For entities formed after 2023, information will also have to be provided about the company applicants (the person who actually files the formation/registration papers and the person primarily responsible for directing or controlling the filing of the documents).
The types of information that must be provided (and kept current) for these beneficial owners include the owner’s legal name, residential address, date of birth, and unique identifier number from a non-expired passport, driver’s license, or state identification card. The entity will also have to provide an image of any of these forms of documentation to FinCEN for all beneficial owners. In place of disclosing sensitive personal information on multiple reports, it is possible to register for a unique identifying number, a “FinCEN identifier”, found here: https://fincenid.fincen.gov/landing. Where a FinCEN Identifier is used, the individual’s FinCEN Identifier account is updated for any change in reporting information in place of updating the multiple legal entity accounts.
Most entities must file an initial report by January 1, 2025. However, entities formed in 2024 must file the report within 90 days of the entity’s formation, while entities formed in 2025 and thereafter must file the report within 30 days of the entity’s formation.
While this is not an annual filing, should any of the reported information change or a beneficial ownership interest be sold or transferred, the entity must report this information within 30 days of the change or face the potential of having the penalties described above imposed. Changes may include reporting a beneficial owner’s change of address or name, a new passport number when a passport is replaced or renewed, or providing a copy of a renewed driver’s license.
Please note that FinCEN will not send unsolicited requests for information. If you receive an email regarding this topic asking you to follow an embedded link or scan a QR code to register, this should be disregarded as spam and deleted.
Should you wish to read more about this report filing, general information can be found here: https://www.fincen.gov/boi, along with Frequently Asked Questions here: https://www.fincen.gov/boi-faqs.
*Filing beneficial ownership reports is not a service that Caliber Accounting & Tax, LLP offers. The information provided is intended to be educational and general, given the potential penalties associated with non-compliance. To the extent that anyone is looking for further information, we would recommend referencing the links included or reaching out to their legal counsel.
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