Millions of small business owners have a new reporting requirement in 2024. They must now file a report each year. This report goes to the Financial Crimes Enforcement Network of the United States Department of Treasury.
The Corporate Transparency Act
This requirement is part of the broader Corporate Transparency Act. The Financial Crimes Enforcement Network oversees the state and determines which small businesses must file the report and when they must do so. In addition, this agency decides what information the businesses must report. Non-compliance could lead to severe penalties. However, recently it was announced the Corporate Transparency Act ruled unconstitutional.
Why Was This Legislation Enacted?
The government is concerned about money laundering and wants to try to prevent this crime with the help of the Corporate Transparency Act. Business owners might try to hide their ownership of certain establishments to facilitate money laundering. They may also conceal this information because they are funding terrorists or committing tax fraud. Congress enacted this law to collect beneficial ownership information and protect national interests while fighting money laundering and more.
Which Businesses Must File?
Every business registered with a Secretary of State or similar office must file a business ownership information (BOI) report unless the business is exempt. These businesses are referred to as domestic reporting companies. In addition, businesses created in foreign companies and registered to conduct business in the U.S. must also file this report. They are known as foreign reporting companies.
Exemptions
Certain categories of businesses are exempt from filing a BOI report. Entities subject to substantial federal or state regulation are generally exempt, such as those that must file reports with the SEC and many financial institutions. Large operating companies that have more than 20 employees, have a physical office within the U.S., and filed a federal income tax or information return for the previous year won’t need to file this report if they had over $5 million in gross receipts or sales.
What Must a Business Include in This Report?
The report must list the beneficial owners of a company, the company’s full legal name, and trade names. The report must also provide the complete street address of the principal place of business, where it was formed, and the taxpayer’s ID number. It must also list each beneficial owner’s full legal name, date of birth, and complete residential street address. The report must share the unique identifying number and issuing jurisdiction for each owner. This number might come from the owner’s passport, driver’s license, state or local ID, or a foreign passport. A picture of the document used for this identifying number must come with the report.
Beneficial owners are those who have substantial control over the company. This control may be direct or indirect. However, any person who owns or controls a minimum of 25 percent ownership of the organization is also considered a beneficial owner. The company applicant information also goes into this report. This applicant is the person who files the document on behalf of the company.The federal government appealed the ruling that states the Corporate Transparency Act is unconstitutional. Business owners should continue acting as if it is in place as the case makes its way through the legal system. Those that do will be ahead of the game if a higher court reverses this decision and the Corporate Transparency Act is permitted. By doing so, a company can ensure it is ready when and if these regulations are put back into place.
