If you own an interest in a legal entity, you will likely need to comply with new reporting requirements, in some cases as early as January 1, 2024. In 2021, Congress enacted the Corporate Transparency Act ("CTA"), which tasked the U.S. Treasury Department with developing a system of standardized reporting for companies (including LLCs and partnerships) being formed in the U.S. and the disclosure of their beneficial ownership information. Failure to comply with these new obligations brings potential civil and criminal penalties to individual business owners.
Who needs to Report?
The CTA requires privately owned corporations, LLCs, partnerships, and other legal entities formed by a filing with a Secretary of State ("Reporting Companies"), to disclose information about their beneficial owners and/or controlling members. Reporting is required for individuals who have "substantial control" over the company or control at least 25% of the entity. All reporting must occur through an online portal to be established on Treasury's Financial Crimes Enforcement Network ("FinCEN") website.
What Information needs to be Reported?
Reporting companies must disclose: (a) the name of the reporting company, (b) any trade name or "doing business as" name, (c) the business street address, (d) the state of formation, and (e) the Taxpayer Identification Number (TIN) under which the reporting company reports to the IRS. Each beneficial owner must report the individual's: (i) full legal name, (ii) date of birth, (iii) business (or residential) address, and (iv) either Passport or state driver's license number (including a scanned copy of the document). As ownership of the entity changes, the beneficial ownership information must be updated, so this creates an ongoing CTA reporting requirement.
When to Report?
Companies formed or registered to do business in the U.S. after January 1, 2024, must report the identities of their beneficial owners within 30 days of formation. Companies formed before January 1, 2024, have until January 1, 2025, to report their current beneficial owners. Any changes to beneficial ownership after January 1, 2025, must be reported within 30 days of the change.
Reporting Violations
The CTA establishes penalties for failing to provide accurate and up-to-date information to FinCEN. Violators may face (a) civil penalties of up to $500 per day for each violation or (b) criminal penalties of up to $10,000 and imprisonment for up to two years.
We would be pleased to assist you in matters concerning the CTA, including any reporting obligations that you may have. Hopkins & Carley will not, without being engaged in writing specifically for this purpose, take any action on your behalf concerning the CTA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
