I have many clients who own all or part of an LLC or a corporation. Maybe they have a small business, or a couple of rental properties, or the family farm was placed in an LLC in order for the siblings to manage heir property. If you own part of a corporation or LLC, a new law may get you stuck with a fine of up to $500.00 per day beginning on January 1, 2025. Do I have your attention? This article is to help educate LLC or corporation owners on corporate transparency act compliance.
The Corporate Transparency Act was enacted on January 1, 2021. The purpose of the CTA is to identify the real owners behind business entities in order to prevent criminals, tax evaders, and terrorists from hiding assets for illicit activity. This may be a good purpose, but the CTA will put a new requirement on law abiding citizens. The Secretary of the Treasury prescribed regulations in accordance with the CTA, and these regulations will be enforced by FinCEN (the Financial Crimes Enforcement Network) which is a bureau within the U.S. Department of the Treasury.
In order to comply with the CTA and FinCEN’s regulations, all Beneficial Owners of a corporation or an LLC are required to provide Beneficial Owner Information to the FinCEN. The current regulation is limited to corporations, limited liability companies, and other ‘similar entities’ that are created by the filing of a document with a secretary of state, but new regulations have already been proposed to include trusts within the CTA oversight.
A Beneficial Owner is someone who owns 25 percent or more of the equity interests of a corporation or LLC, and the information to be reported for each Beneficial Owner is a legal name, date of birth, current address, copy of an I.D. (like a passport or driver’s license). The Beneficial Owner Information is supposed to be confidential and may not be disclosed to the general public. This information is available to a federal agency engaged in national security, intelligence, or law enforcement; to a state law enforcement agency if authorized by a court of competent jurisdiction to seek information in a criminal or civil investigation; to a federal agency on behalf of a request pursuant to foreign law enforcement; to a financial institution through consent; and to a federal functional regulatory agency if so authorized by law.
The penalty for providing false or fraudulent Beneficial Owner Information or for willfully failing to provide complete or updated information is up to three years in prison and/or fines up to $10,000.00, or a civil penalty up to $500 per day for each violation. There are 18 exemptions from having to provide this information to FinCEN, but the type of exemption that would be most familiar to readers of this article are for corporations/LLCs that employ more than 20 employees on a full-time basis in the United States and corporations/LLCs that file US income tax returns demonstrating more than $5,000,000 in gross receipts. Basically, this is a law that only applies to the small guys.
If you are a Beneficial Owner of an LLC or corporation that was in existence before 2024, you have until January 1, 2025 to file your information with FinCEN. If you form a new LLC or corporation, you must provide the Beneficial Owner Information to FinCEN within 90 days if the corporation/LLC is formed in 2024, and within 30 days if the corporation/LLC is formed in 2025 or after. Remember, $500.00 per day.
Once you know about the CTA, compliance with this law is relatively easy if you are comfortable with computers. FinCEN has a website through which you can complete the filing online. It took me about ten minutes to file the Beneficial Owner Information for my corporation, with the most challenging part being the need to scan my driver’s license and attach it to my application. I did not find an option to file this information other than through the website at this time, so if you are not comfortable with computers, I suggest you see your attorney or CPA for assistance.
BY DAVID SILVER
David Silver teaches The Legal Environment of Business in ECU’s Department of Finance. Dave is also a Partner with the Graham Nuckolls Conner Law Firm in Greenville, NC, concentrating in Elder Law.
