Information on FinCEN Beneficial Ownership

If you’re a small business owner, brace yourself for a new task on your to-do list. Commencing on January 1, 2024, the initial phase of the Corporate Transparency Act (CTA) takes effect, introducing a fresh federal filing requirement for most corporations and limited liability companies (LLCs), with only a few exceptions. Approximately 99% of small business proprietors are obligated to complete the Beneficial Ownership Information filing mandated by the Financial Crimes Enforcement Network (FinCEN). Not the most exciting addition to your responsibilities!

The primary objective of the CTA is to curb the use of anonymous shell companies for activities like money laundering, tax evasion, and other illicit purposes. As is often the case with rules and laws, it casts a wide net, inconveniencing the majority to identify a few bad actors. However, it’s worth noting that individuals with malicious intent likely won’t be deterred by such regulations.

Before you envision relocating to Mars out of frustration, it’s essential to acknowledge that banks have been implementing a variation of this procedure for many years. Certain businesses are exempt from the CTA, including sole proprietors (those without a formal entity registration), large businesses with over 20 full-time employees and $5 million in receipts on their previous-year tax return, heavily regulated entities like banks and insurance companies, nonprofits, and others.

The CTA aims to compile an extensive government database containing the identities and contact details of the “beneficial owners” of various business entities. Beneficial owners are the individuals who own or exert significant control over the entity.

For most reporting companies, identifying beneficial owners is straightforward. However, for entities with intricate ownership structures, this process can be more challenging.

Starting in 2024, if you establish a new LLC or corporation, you must file a beneficial owner information report with FinCEN within 90 days of formation. This report must include the full legal name, date of birth, current residential address, a unique identifying number from a valid document, and an image of that document for each beneficial owner. Similar information is required for those filing the formation documents.

This beneficial owner information report is submitted online through a new federal database called BOSS (Beneficial Ownership Secure System), available for filing starting January 1, 2024. No filing fees are applicable, and the information in the BOSS database is exclusively accessible to law enforcement, the IRS, and other government agencies, with no public disclosure.

It’s crucial to note that BOSS reporting is distinct from state and local filings when creating a new business entity. Nevertheless, filing the BOSS report is now an integral part of the process for most new business entities.

Non-compliance with the CTA comes with a hefty penalty of $500 per day, up to a maximum of $10,000.

Additional key points to consider:

  • Rental properties held in an LLC are subject to compliance.
  • Individuals owning or controlling 25% or more of a “reporting company” are considered beneficial owners.
  • Businesses formed in 2024 have a 90-day window (extended from 30 days), while pre-existing businesses have one year to comply.
  • Compliance is a one-time requirement, unless there are changes in beneficial ownership, in which case an update must be filed within 30 days.

Share this article

Related Articles

Houston payroll experts
5 Common (and Costly) Payroll Errors and How to Avoid Making Them

Payroll is one of the most important aspects of any business, but it’s one that,...

tax deductions Houston
5 Topics Every Business Owner Should Discuss with An Accountant

Your accountant or CPA is a business asset that you should put to good use...

top rated Houston accountants
5 Small Business Accounting Mistakes

Small businesses make accounting errors and oversights regularly. Here, we cover five of the most...