Small business owners – get ready for new non-tax disclosure requirements coming in 2024 – with steep noncompliance penalties.
In 2021, Congress enacted the Corporate Transparency Act (CTA) that mandates new reporting by small businesses to combat money laundering. The new disclosure form will be required by the end of 2024 for existing entities and within 30 days of formation for new entities formed in 2024. The program will be administered by the Financial Crimes Enforcement Network (FinCEN) which is an agency of the US Dept of Treasury separate from the IRS. The CTA requires the disclosure of beneficial ownership information (BOI) of certain entities. A beneficial owner is someone who directly or indirectly either (1) exercises substantial control over the entity or (2) owns or controls at least 25% of the ownership interests of the reporting entity.
Who: All domestic and foreign entities that have filed formation or registration documents with a US state or Indian tribe unless one of 23 exceptions are met. The entities required to report include corporations, LLCs and partnerships. Exempt entities include sole proprietorships that are not registered with the Secretary of State and large companies defined as those entities that have more than 20 employees AND more than $5M of gross revenue AND have a physical office in the US. Publicly traded companies are also exempt.
Beneficial owner info disclosed: Name/Address/DOB and unique identifying number and issuing jurisdiction from an acceptable identification document and copy of the document (for example – passport, REAL ID).
Noncompliance penalties: Civil penalties of up to $500 per day and criminal penalties include a $10,000 fine and/or up to two years of imprisonment.
Substantial control is defined by reference to the power an individual may exercise over a reporting entity. Senior officers, regardless of title, may be included if they direct, determine or exercise substantial influence over important decisions for the entity.
When: Entities organized before 1/1/24 will have until 1/1/25 to make their initial CTA filing. Any subsequent updates/corrections to the information provided must be done within 30 days of changes to the information, including address changes for any beneficial owners. New entities formed after 12/31/23 have only 30 days from formation to make their initial CTA filing.
Access to BOI database: FinCEN will be authorized to disclose the reported information to certain agencies including US federal agencies engaged in national security, intelligence or law enforcement, certain state/tribal agencies, Dept of Treasury and financial institutions under certain restrictions.
You will hear more about this disclosure and how to file in upcoming months. For more information, go to www.fincen.gov/boi.