As we move into the second half of the year, it is increasingly important for your business to start preparing for the Financial Crimes Enforcement Network’s (FinCEN) rollout of the Corporate Transparency Act (CTA).
Effective January 1, 2024, FinCEN will launch an online database to track beneficial ownership of reporting companies. Reporting companies formed on or after January 1, 2024 will have 30 days from creation or registration to file an initial report. All reporting companies formed prior to January 1, 2024, will have until January 1, 2025, to file an initial report. If a reporting company discovers an inaccuracy in a previously filed report, or if there is a change in the information that the company previously reported, then the reporting company must be filed within 30 days of the discovery of such inaccuracy or change.
Meeting these deadlines is crucial to avoid fines or other penalties. Below are the steps your business should take to determine if it needs to report and what needs to be reported before FinCEN’s deadlines.
FIRST, DETERMINE IF YOUR BUSINESS IS A REPORTING COMPANY
Reporting companies are required to submit a report to FinCEN. A “reporting company” is any domestic or foreign corporation, limited liability company, or other entity created or registered to do business by the filing of a document with a secretary of state or similar office under the laws of any state or Indian tribe.
IF YOUR BUSINESS IS A REPORTING COMPANY, CHECK IF ANY EXEMPTIONS APPLY:
While most businesses fall under the broad definition of a “reporting company,” the CTA provides 23 categories of businesses that are exempt from reporting. One significant category of exemptions is the large operating company exemption. This exemption applies to any business entity that:
- Employs more than 20 full-time employees in the United States,
- Filed income tax returns in the U.S. demonstrating more than $5,000,000 in gross receipts or sales in the previous year (including the receipts or sales of subsidiaries and other entities through which such entity operates), and
- Has an operating presence at a physical office within the U.S.
A more detailed list of exemptions can be found on FinCEN’s Frequently Asked Questions page here.
It is important to note that any business that becomes a reporting company due to loss of exempt status must submit an initial report within 30 days of losing their exemption.
WHAT TYPE OF INFORMATION DOES YOUR BUSINESS NEED TO PROVIDE?
If your business is not exempt from reporting, it must submit a report providing certain information about your company and its beneficial owners.
Your report must include the following information about your company:
- The full legal name.
- The trade name or “doing business name,” if any.
- A complete current address.
- The state, tribal, or foreign jurisdiction of formation or registration.
- IRS Taxpayer Identification Number (TIN) and Employer Identification Number (EIN).
Your report must also provide the following information about each beneficial owner:
- Full legal name.
- Date of birth.
- A current residential address.
- An identification number (e.g., non-expired ID, driver’s license, or passport number).
- An image of the corresponding identifying document.
More information on identifying your beneficial owners can be found on FinCEN’s website here.
Additionally, if your business is created or registered after January 1, 2024, you must provide information on the company applicant, which is the person who submits the formation or registration documentation to the applicable state authority (and the person who is primarily responsible for directing or controlling that filing, if different).
FINCEN IDENTIFIER NUMBER
After submitting initial reports, individuals and reporting companies will obtain a unique FinCEN identifier number, which can be used to make future filings, updates, and corrections.
BUSINESSES SHOULD REMAIN PROACTIVE
The CTA is guaranteed to change the way businesses collect and monitor their important organizational information. With more than half of 2023 behind us, while we wait for FinCEN to provide more information on its online database, businesses need to be proactive by starting to consider who in their organization can find the right reporting information and how to ensure that information is accurate.
