The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued its final rule on the reporting requirements of beneficial ownership information under the Corporate Transparency Act (CTA)* on September 29, 2022. The final rule will become effective on January 1, 2024.
The final rule requires certain entities to report their beneficial owners with FinCEN. The CTA and the rules promulgated thereunder are “intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity, while minimizing the burden on entities doing business in the United States.”
Any entity that is defined as a reporting company under the CTA must file a beneficial ownership information report with FinCEN. A reporting company is defined as any U.S. corporation, limited liability company (LLC) or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe, and any non-U.S. corporation, LLC, or other entity that is registered to do business in the U.S.
The CTA and the final rule have listed several exemptions to the definition of a reporting company, including certain financial institutions and issuers of securities, certain tax-exempt entities and entities assisting tax-exempt entities and certain trusts.
Additionally, there is an exemption for large operating companies that employ 20 or more full-time U.S. employees, have more than $5 million in U.S.-sourced revenue and have a physical operating presence in the U.S. Furthermore, there are exemptions for certain subsidiaries that are controlled or wholly owned, directly or indirectly, by one or more exempt entities.
A reporting company existing before January 1, 2024 must file its initial report with FinCEN by January 1, 2025. A reporting company created or registered after January 1, 2024 must file its initial report with FinCEN within 30 days of its creation or registration.
FinCEN has not yet provided forms for reporting. However, the final rule will require a reporting company to provide each beneficial owner’s name, date of birth, residential or business address and a unique identifying number from an acceptable identification document (e.g., driver’s license or passport).
Reporting companies created or registered after January 1, 2024, will also be required to report their company applicants. A company applicant is any individual who files the document that creates the company and any individual who is primarily responsible for directing or controlling the filing.
FinCEN estimates that there will be approximately 32.6 million reporting companies in the first year of its implementation. As a result, it is imperative that business owners familiarize themselves with the reporting requirements. Violations of the CTA can lead to civil and criminal penalties.