News

Business Owners’ Reporting Obligations to the Federal Government

Corporate Transparency Act – Effective January 1, 2024

Dear Valued ZLG Clients and Friends,

There is a new landmark law that affects almost all business owners, especially small and medium businesses. It must be understood so a business owner appreciates its severe legal obligations and consequences, and then complies.

Summary
The Corporate Transparency Act (“CTA”) mandates certain entities established after January 1, 2024, to file an Initial Report with personal information to the Financial Crimes Enforcement Network (“FINCEN”) within 90 days of formation, while pre-2024 entities have until January 1, 2025. Starting January 1, 2024, disclosure of beneficial ownership information (“BOI”) is required for various entities unless exempt, with unclear specifics pending recent regulations. Timely subsequent reports are necessary for any changes in ownership status. Non-compliance may result in penalties, stressing the importance of seeking guidance from a CPA or attorney.

In detail
The purpose of the CTA is to enhance transparency in businesses’ structures and ownership to fight money laundering, tax fraud, terrorism financing, and other illicit activities. However, this law has wide-spread consequences regarding individual privacy rights and stringent compliance obligations. It pertains to small and large business owners, although with some exceptions.

Businesses operating in the United States (domestic and non-US) that were set up after January 1, 2024, shall be required to file an Initial Report with personal information with the FINCEN, a bureau within the U.S. Department of the Treasury, within 90 days of the establishment of the new business. Businesses set up before January 1, 2024, are not required to file an Initial Report with personal information with FINCEN until January 1, 2025, about one year from now. Therefore, if you are considering forming an entity in 2024, we strongly suggest you consider setting up the business prior to January 1, 2024, which will allow additional time for you to have clarity of the legal obligations for reporting personal information to FINCEN.

Starting January 1, 2024, the CTA will require the disclosure of beneficial ownership information (otherwise known as “BOI”) of required entities for the people who own or control a company, whether the entity is a corporation, limited liability company, limited partnership, and other similar entity formed or qualified to do business in the U.S., unless they fit within defined exemptions (see here). While trusts are not reporting companies as they don’t file with a government agency for formation purposes, if a trust holds reporting companies as an asset, then any one with substantial control over such companies is required to report, such as trustees, trust protectors, etc. The CTA requires the BOI disclosure to FINCEN, yet the exact specifics of the disclosure are still unclear as a Regulation with the reporting guidance was only recently released on November 30, 2023, and time is needed to review, assess and understand it. There also has been an objection to its constitutionality raised, which may affect compliance.

The first step for compliance is to file an Initial Report. Subsequent reports must be filed within 30 days of any change to the beneficial owners’ status. For example, a change through the sale of a business, merger, acquisition, or death requires a filing as does becoming aware of or having reason to know of inaccurate information being previously filed, and the filing must be made within 30 days of the knowledge. It is expected that these reporting requirements will be overly demanding and there will be material penalties for non-compliance.

As people in all fields are studying the recent Regulations, we are providing a link to a “Regulatory Update”, with information provided by the American Institute of Certified Public Accountants. The Regulatory Update contains information for your consideration to assist in providing some guidance to understand this murky legislation. We are now in the implementation stage, and are quickly approaching the beginning of the reporting obligation when the new year starts.

Please be mindful that ZLG is not responsible for complying with these new FINCEN filing obligations on your behalf, whether ZLG assisted you in setting up your business or not. However, we are available to provide services to assist you navigate these new legal filing obligations and understand if you need to file your BOI. If you have any questions about the CTA, BOI or the reporting requirements generally, please reach out to us at your convenience, preferably in the first quarter of 2024 when we expect to have further clarity as to such company reporting obligations.

Please also keep in mind the critical dates mentioned in this letter. Failure to comply with the new FINCEN requirements could subject you to penalties unless the government opts to delay the filing deadlines mentioned above, but that will not halt any filing obligation, only delay it. You should discuss these new requirements with a CPA or business lawyer.

To read an additional regulatory update by AICPA, click here.

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Attorney Advertising. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice. You should not act upon any such information without first seeking qualified professional counsel on your specific matter.