This disclosure obligation, mandated by the Corporate Transparency Act (CTA), will require these companies to identify their beneficial owners and company applicants based on definitions developed by federal regulators. Because these reporting obligations begin on January 1, 2024, companies should begin taking steps now to prepare themselves for this new regulatory regime.
If you own or advise a corporation, limited liability company (LLC), limited partnership (LP), limited liability partnership (LLP), limited liability limited partnership (LLLP), business trust or any other entity created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe, or you are planning to form one of these entities, it’s imperative that you are aware of a new federal filing requirement coming in 2024.
In 2021, Congress passed a new law called the Corporate Transparency Act (CTA) that requires corporations, LLCs, and other business entities to provide information about their owners to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which is a unit separate from the IRS. The CTA is part of a government crackdown on corruption, money laundering, terrorist financing, tax fraud, and other illicit activity. It targets the use of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States.
Businesses subject to the law will have to file a Beneficial Owner Information (BOI) report with FinCEN, including each beneficial owner’s full legal name, date of birth, and residential street address, as well as an identifying number from a legal document such as a driver’s license or passport. FinCEN will include the information in a database for use by law enforcement, national security and intelligence agencies, and federal regulators that enforce anti-money-laundering laws. The database will not be publicly accessible.
The CTA did not take effect immediately. Rather, Congress gave the FinCEN time to write regulations governing how the CTA should be applied and to give businesses a heads-up about the new law. FinCEN has now issued its proposed regulations, and they take a fairly hard line on how the law will be applied.
The new regulations make the following clear:
If you have questions about the CTA and its effect on you, we urge you to contact your legal counsel ASAP. From a legal perspective, we are limited in the assistance we can provide, but as your trusted advisor wanted to make you aware of this requirement so that you can plan ahead.
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