Beginning next year, certain small business entities in the United States will be required to disclose more information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN). This new reporting requirement was enacted Jan. 1, 2021, as part of the Corporate Transparency Act (CTA)—which is itself part of the Anti-Money Laundering Act of 2020—and will go into effect Jan. 1, 2024.
The CTA directs FinCEN to create a central database and collect information on individuals behind “Reporting Companies”— entities that have filed for organization or are registered to do business in the U.S. The new requirements are intended to help law enforcement catch money launderers, terrorists, and other financial criminals. More than 32 million business entities are expected to be impacted.
Broadly speaking, a Reporting Company is any company with fewer than 20 employees or less than $5 million in gross revenue. Law firms, solo practitioners, and certain family limited partnerships and limited liability companies are also considered to be Reporting Companies. Large operating companies, registered investment advisors, nonprofit organizations, insurance companies, accounting firms, and other select entities are generally exempt.
What Information is Required?
Under the new rules, a Reporting Company will be required to provide certain information about itself:
- Full name of the company, including any trade names
- Current street address
- Jurisdiction information
- Tax ID number (TIN)
In addition, Reporting Companies must also furnish information about their “beneficial owners”—those individuals who exercise “substantial control” over a Reporting Company—including:
- Full legal name
- Date of birth
- Current address
- Identification number from a picture ID or FinCEN identifier number (FIN)
If ownership interest is held through a trust, certain specific individuals are each deemed to have an ownership interest (i.e., grantor, beneficiaries, trustees). The individual that was primarily responsible for directing or managing the filing of paperwork to create or register a Reporting Company must also submit a disclosure.
When Do I Need to Act?
The new reporting requirements will go into effect Jan, 1, 2024. Reporting Companies that were created or registered prior to Jan. 1, 2024, will have until Jan. 1, 2025 to file their initial reports. Any Reporting Company created after Jan. 1, 2024, will have 30 days after receiving notice of their registration to file their initial reports.
How Often Will I Have to Submit a Report?
This is a one-time filing requirement; affected entities will only need to submit a new report if there is any change to the information submitted in the original report, and must do so within 30 days. Likewise, Reporting Companies must submit a corrected report within 30 days of discovering an inaccuracy.
What Are the Penalties For Noncompliance?
Penalties can be steep. Failure to report complete information or submitting a report with false information to FinCEN can lead to fines up to $10,000 and imprisonment for up to two years.
What If I Have More Questions?
Our Financial Planning team is here to help. Give us a call at 310-556-2502, email firstname.lastname@example.org, or reach out to your Westmount advisor directly. More information about the new rule can also be found on FinCEN’s website.
This document was prepared by Westmount Asset Management, LLC (“Westmount”). Westmount is registered as an investment advisor with the U.S. Securities and Exchange Commission. Westmount believes the sources used in this document are reliable, but Westmount does not guarantee their accuracy. The information contained herein reflects subjective judgments, assumptions and Westmount ‘s opinion on the date made and may change without notice. Westmount undertakes no obligation to update the contents of this document. It is for information purposes only and should not be used or construed as investment, legal or tax advice, nor as an offer to sell or a solicitation of an offer to buy any security. No part of this document may be copied in any form, by any means, or redistributed, published, circulated, or commercially exploited in any manner without Westmount ‘s prior written consent.
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