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In 2021, Congress passed the Corporate Transparency Act (CTA), which created a new beneficial ownership information reporting requirement for nearly all business owners, LLC real estate owners included. Financial Crimes Enforcement Network (FinCEN) is administering the reporting requirement that went into effect in January of 2024, and most entities will need to file the report before 12/31/2024.
Since many of our clients own LLCs or other business entities, we are providing a resource to clients, as this requirement has had relatively little coverage until now. For specific information, please visit https://www.fincen.gov/boi.
For most small business owners, this requirement will take 10-15 minutes to complete. However, more complicated business ownership structures may require a more thoughtful approach.
Why did Congress pass the CTA?
“The purpose was to combat illicit activity (e.g., money laundering, tax fraud, and financing terrorism). When you create a state law entity in the US (e.g., LLC, limited partnership, corporation, etc.), you generally don’t have to report the owners or individuals in control. Therefore, it is relatively easy to use these entities to move illicit funds into the US and conceal the ultimate beneficiary of those funds.”
-Nelson Rodes, JD, LLM – Member Kinkead & Stilz
Who is Required to Report?
All domestic and foreign entities that have been formed within a US State. This includes single-member LLCs.
Who is Exempt from Reporting?
There are 23 entities exempt from the reporting requirements. These entities include large organizations, banks, nonprofits, etc., which largely already have requirements of reporting ownership at a Federal/public level. A list of these types of entities can be found here: https://www.fincen.gov/boi-faqs
What are common oversights as part of this requirement?
“Since most other reporting requirements are aimed at larger businesses, most small business owners may be surprised to learn that they now have a reporting requirement. All entities that are formed by a filing with the secretary of state are all reporting entities under the CTA, including entities formed to manage family wealth which aid in estate planning, single-member LLCs that are disregarded for tax purposes, and entities formed to hold rental property.”
-Nelson Rodes, JD, LLM – Member Kinkead & Stilz
Now I know I need to file, where do I go?
Filing electronically can be done on the FinCEN website: https://www.fincen.gov/boi
What is the best practice for determining if someone has “substantial control?”
“I recommend all senior officers or any person that can bind a business to take an action, other than at the administrative level, be included as persons with “substantial control”. FinCEN has included the following categories as having “substantial control”: persons that (i) serve as a senior officer (e.g., CEO, COO, CFO, General Counsel, President) or perform a similar function; (ii) have authority over the appointment or removal of any senior officer or a majority of the board of directors or similar body; (iii) directs, determines, or has substantial influence over important decisions made by the company; or (iv) have any other form of substantial control over the company. So, it appears broadly defined.
Additionally, if there is a trust or other non-reporting entity with beneficial ownership or substantial control of the reporting entity, the reporting entity will need to report the beneficial owner or person with substantial control over the trust or other entity – which may include the trustee, members of an advisory committee in the document if such committee controls the trust’s interest in the reporting entity and individuals who may have a power of appointment over the shares or membership units of the reporting entity.”
-Nelson Rodes, JD, LLM – Member Kinkead & Stilz
Is there a fee or requirement for an attorney/CPA to file the report?
No, and No. FinCEN specifically states that they expect most companies to be able to self-report.
What is reported to FinCEN?
Legal name, Birthdate, Residential Address, Acceptable Identification Document (Driver’s License). Reporting companies established after 1/1/24 will have additional requirements.
What happens if I do not file?
There are civil penalties of up to $500 per day for ongoing violations and criminal penalties of up to two years in prison and up to a $10,000 fine.
What if I have an old LLC I’m not actively using?
It is best practice to report on any entity that has not been dissolved. You can then find a form to close an old LLC by searching “dissolve business” with your state and finding a .gov or Secretary of State link.
When do I file if I formed an entity after January 1st, 2024?
Within 90 days of creation, until January 1st, 2025. After 1/1/2025 the requirements change to 30 days.
What is required if the beneficial ownership information changes?
An amendment must be made within 30 days.
Is there an annual requirement?
No.
What resources do I have to help?
As quoted in this article, Nelson Rodes is an attorney at Kinkead and Stilz in Lexington, KY with experience in CTA reporting. He may be contacted at nrodes@ksattorneys.com or 859-296-2300. Additionally, FinCEN has a FAQ located here: https://www.fincen.gov/boi-faqs. Your business attorney or CPA may also be able to help with complicated applications.
Ballast is providing the information above for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Ballast does not provide tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction.
