ACTION REQUIRED BEFORE JANUARY 1, 2025
The Corporate Transparency Act (“CTA”), a federal law recently enacted to help prevent money laundering and other financial crimes, requires that you report identifying information regarding entities and their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”) before January 1, 2025, unless an exception applies.
The CTA impacts almost all closely-held businesses, including common forms of business entities such as LLCs, corporations, and limited partnerships. The scope of the law is very broad, and its requirements apply even to small family businesses and entities designed only to hold property such as real estate which conduct no active business.
GOOD NEWS: It is not difficult to report the required information online at www.fincen.gov. There is no annual reporting requirement. Once you report, you are done unless the identifying information for the entity or beneficial owners changes.
BAD NEWS: If you do not timely report the information (and update the information as needed), you could be subject to steep fines (up to $500 per day) and potential criminal liability.
Please review the Small Entity Compliance Guide and Frequently Asked Questions, which can be found at www.fincen.gov/boi/small-entity-compliance-guide and https://www.fincen.gov/boi-faqs, respectively.
KEY TAKEAWAYS:
- Most entities formed with the Secretary of State must report to FinCEN.
- Beneficial owners of a reporting entity are individuals who directly or indirectly own 25% or more of the entity AND/OR have substantial control over the entity (senior officers, etc.).
- If you are a beneficial owner of more than one entity, I recommend getting an individual FinCEN ID number (“identifier”) so that you can enter (and update) your personal information one time instead of multiple times for each entity.
- Ideally all beneficial owners of a reporting entity will each obtain an identifier so that they can update their own information as needed.
- If it is unclear whether a person is a beneficial owner of an entity, err on the side of caution and report such person as a beneficial owner to FinCEN.
- If a trust owns an entity, then most likely the grantor(s) and the trustee(s) of that trust are beneficial owners.
- Proposed (not final) regulations would require reporting of many residential real estate transfers, regardless of whether the transfer is a sale, gift, inheritance, or a transfer to a trust. Bank financed transfers are excluded from the reporting requirements. I expect final regulations to be issued soon.
Due to the broad reach of the CTA, I am not able to assist clients in registering with FinCEN. The guidance on the FinCEN website is user friendly and extensive. My knowledge of the CTA is limited to the information provided on the FinCEN website. You are welcome to contact me with specific questions, but please do not wait until the last minute to do so.