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New Businesses Must Registration With Financial Crimes Enforcement Network (FinCEN) Within 90-Days Of Opening
Beware: FinCEN Beneficial Ownership Reporting Requirement Impacts Millions Of Small Businesses
On September 22, 2022 the US Treasury's Financial Crimes Enforcement Network (FinCEN) issued final rules requiring beneficial ownership reporting for small businesses, i.e. single truck owner operators. The rule requires businesses to file reports with FinCEN that identify two categories of individuals:
the beneficial owners of the entity, and
the company applicants of the entity
This rule requires most corporations, LLC's and similar businesses created in or registerd to do business in the United States to report (disclose) information about their beneficial owners to FinCEN. The rules came out of Corporate Transparency Act passed by the Biden administration in January 2021.
The purpose of the new reporting rule is to allow the Federal government to create a national database of information concerning the individuals who, directly or indirectly, own a substantial interest in, or substantial control over (beneficial owners) certain types of domestic and foreign entities.
The rule is effective January 1, 2024
Businesses created BEFORE January 1, 2024 will have one year (January 1, 2025) to file their initial reports
Businesses created AFTER January 1, 2024 will have 30 days after creation to file their initial reports
Businesses will have 30 days to filed updated reports upon any change in:
beneficial ownership information
business name
change of business address
ALERT: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled "Important Compliance Notice" and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.
Penalties For Non-Filing Of Reports:
Penalties for failure to file reports: $500 per day!
Who Is Required To File Reports:
C Corporations
S Corporations
Limited Liability Companies (LLC)
Multi Member Limited Liability Companies (MMLLC)
Single Member Limited Liability Companies (SMLLC)
Limited Liability Partnership (LLP)
Limited Liability Limited Partnerships (LLLP)
Domestic reporting company – any entity that is a corporation, a limited liability company, or otherwise created by the filing of a document with a secretary of state or similar office.
Foreign reporting company – any entity formed under the law of a foreign country and registered to do business in any U.S. state by the filing of a document with a secretary of state or similar office.
Who Is Exempted From Filing Reports:
SEC-reporting companies
Regulated financial services companies, including banks, credit unions, depository institution holding companies, registered securities broker-dealers, registered investment companies and investment advisers, venture capital fund advisers, and pooled investment vehicles that are operated or advised by the foregoing
Insurance companies
PCAOB-registered accounting firms
Tax-exempt entities
Inactive entities that existed before January 1, 2020, are not engaged in active business, are not owned by a foreign person, have not had a change in ownership in the last 12 months, have not sent or received funds greater than $1,000 in the last 12 months, and do not hold any assets
Subsidiaries of certain exempt entities
There is also an exemption for entities that employ more than 20 full-time employees in the U.S., have an operating presence at a physical office in the U.S., and demonstrate more than $5 million in gross receipts or sales on their federal income tax return (excluding receipt/sales from sources outside the U.S.). If a company falls below these thresholds in the future, a report must be filed within 30 days. An updated report is required if a reporting company later becomes eligible for the exemption.
File your Beneficial Ownership Information Report (BOI) HERE
Conclusion
The Corporate Transparency Act is an expansion of anti-money laundering laws and is intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity. Broadly speaking, it requires most U.S. business to disclose to the federal government in reports about who owns their business and lumps ordinary small businesses in with the nefarious underworld. Will this new rule deter illicit activity? Probably not but it ensures registering with FinCEN as opposed to running their business now becomes the single most important priority for American businesses lest they go bankrupt from the $500 per day penalties!
Are you experiencing a tax controversy dispute with the IRS or have questions regarding beneficial ownership reporting? Request a free consultation HERE with Mark W. Sullivan, EA .
About the author
Mark W. Sullivan, EA founded Sullivan Consulting in 1998. He specializes in federal tax controversy representation, appeals and consulting on behalf of individuals, businesses, law, and accounting firms nationwide. In addition, he has served as the consulting and expert witness in numerous civil and criminal cases in multiple federal district courts.
Mark has an unlimited Enrolled Agents license and is admitted to practice before the Internal Revenue Service based on his extensive experience as a Revenue Officer in New York, NY, St. Louis, MO and Washington, D.C.
Copyright 2023, 2024 Mark Sullivan Consulting, PLLC.
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.
Additional references:
"The Corporate Transparency Act: Questions and Answers", Jonathan A. Greene and Casandra J. Creekman, WrickRobbins, March 1, 2023
"Corporate Transparency Act Blocked By Texas Court", John Wooley, Bloomberg Law, December 3, 2024
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