In recent years, we have seen an increase in legislative and regulatory compliance requirements for both individual and business tax returns. The ever-changing political landscape, significant advances in technology, and even unintended consequences of policy changes have made it more important than ever for taxpayers to stay informed on their annual tax filing requirements. One such legislative change is the Corporate Transparency Act (the “Act”), which gives businesses and their stakeholders even more return-related homework.
The Corporate Transparency Act
The Act, which passed in 2021 with bipartisan support, requires that businesses file reports with the Financial Crimes Enforcement Network (FinCEN) disclosing information on its beneficial owners beginning in 2024. Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company by either exercising “substantial control” over the reporting company, or by owning or controlling 25% or more of the “ownership interests” of the reporting company.
Although the specific form that will be used to create these beneficial owner reports has not yet been released, a complete report will contain:
- The company’s legal name (including all applicable DBAs),
- The company’s principal place of business address,
- The state in which it is registered,
- The company’s TIN / EIN, and
- A list of all of the company’s individual beneficial owners, including their name, DOB, address, and a driver’s license or passport number
Initial rounds of these reports will be due 1/1/25 for existing companies, and 30 days after the date of formation for any subsequently formed companies. Additionally, if a company has a change in their beneficial ownership, an updated report must be filed with FinCEN within 30 days of the change. The reports will be filed via FinCEN’s website and will be stored in a secure database accessible by certain authorized governmental agencies, financial institutions, and other authorized users.
Although there are some exceptions, these reports will be required of nearly all domestic and foreign business entities. If a company fails to complete this new homework assignment, they face steep noncompliance penalties, including a $500/day fine for reports not fully and accurately filed (up to a $10,000 maximum), or even prison time if the company is found to have willfully failed to file. Exceptions to the penalties may apply if reasonable cause is shown, but that burden of proof, which may be hard to demonstrate, falls on the company.
It is important that businesses are prepared to take on this new homework assignment, and they may need to engage legal and accounting resources to assist with timely and complete reporting. While the preparation of the report itself may ultimately be outsourced, the responsibility of filing these reports lies squarely with the company. As you review the implications of the Act on your business(es), please do not hesitate to reach out to our team of experts with any questions or concerns.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
