Corporate Transparency Act: FinCEN Compliance Guide

corporate transparency act fincen reporting requirements blog post by Tax Hack accounting group featured image

Corporate Transparency Act took effect Jan. 1, 2024, requiring non-exempt U.S. entities and non-exempt foreign entities registered to do business in the United States to submit beneficial ownership information (BOI) reports to a confidential FinCEN database.

Businesses will have until January 1, 2025, to file under the updated compliance requirements, so small businesses should start preparing this year. Our tax experts put together this guide to help you prepare for the upcoming transition.

Understanding the Corporate Transparency Act

The CTA was enacted to prevent money laundering, terrorist financing, and other illicit activities.

By increasing the information reported on business entities, the CTA aims to prevent the exploitation of U.S. corporations and LLCs for criminal gain and assist law enforcement in detecting criminal activity.

The CTA officially took effect on January 1, 2024. Starting this year, you must keep your beneficial ownership info on file with the Financial Crimes Enforcement Network, or “FinCEN”, a division of the U.S. Treasury Department.

You could face financial penalties or jail time for failing to satisfy these requirements, so don’t take them lightly.

What is FinCEN?

FinCEN stands for the Financial Crimes Enforcement Network. It is an organization of the United States Department of the Treasury.

The organization’s primary mission is to safeguard the financial system from illicit use and combat money laundering and other financial crimes, including terrorism financing.

On its website, the organization says it currently maintains 300 employees, primarily comprised of intelligence analysts, financial specialists, and computer experts.

FinCEN works hand in hand with over a dozen regulatory and law enforcement agencies to prevent money laundering, fraud, and other financial crimes.

Is FinCEN Considered Law Enforcement?

No, not technically. FinCEN doesn’t have arrest powers and they’re not directly involved with enforcing laws.

Instead, FinCEN operates more as an informational network that supports and informs law enforcement.

Here’s how FinCEN describes itself on its website:

FinCEN is a network, a link between the law enforcement, financial, and regulatory communities. Because the changing financial world creates vast opportunities for criminals, FinCEN strives to work with its domestic and international partners to maximize the information sharing network and find new ways to prevent and detect financial crime. — Financial Crimes Enforcement Network FAQ page

New Reporting Requirements for 2024

Reporting companies must complete their initial FinCEN filing before 2025, so you should start preparing as soon as possible.

The filings must include identifying info for all owners, including their names, birthdates, addresses, and tax ID numbers.

Your FinCEN filings must also include identifying info about your company, like its legal name, plus any associated DBA’s and other pertinent info.

FinCEN recently extended its initial deadline to give companies more time to become familiar with the new regulations. Now, you’ll have until January 1, 2025, to submit your beneficial ownership information report.

If your company was formed in 2024 or later, the requirements are slightly different. You’ll have 90 days to file your compliance report from the date you officially formed your entity.

Who is Required to Report?

The following entities fall within the scope of the CTA and must report BOI to FinCEN, unless exempt:

  • Domestic Reporting Companies: Any corporation, limited liability company (LLC), or other similar entity.
  • Foreign Reporting Companies: Any corporation, LLC, or other entity formed under the laws of a foreign country registered to do business in any U.S. state.

Large businesses that have more than 20 full-time employees and annual revenues exceeding $5 million may be exempt from these requirements, provided they have a physical office within the United States.

Certain companies that file reports with the Securities and Exchange Commission (SEC) may also be exempt from the CTA requirements. This exemption could extend to other federally regulated companies, including banks, credit unions, investment advisors, insurance companies, public utilities, and similar entities.

Fincen compliance infographic by Tax Hack Accounting group

How to Prepare for the New FinCen Requirements

If you’re a beneficial owner, start preparing your FinCEN filing as soon as possible. Discuss the matter with your tax advisor and come up with a plan as soon as possible.

It’s 2024, so that means the new guidelines are here. Start collecting the necessary information now to ensure you’re ready when the time comes to report.

If you make a mistake in your filing, you have 30 days to file an amended report rectifying the error.

There is no fee to apply for this report, but your company may benefit from hiring a professional to ensure that you are compliant when filing.

Small Business FinCEN Compliance

The new reporting requirements could create additional compliance tasks for small businesses, like reporting changes in beneficial ownership.

Initially, the new requirements are straightforward, but you have to keep up with it. You must notify FinCen of any changes in beneficiary ownership.

Small businesses should bring in an advisor to ensure they don’t run into compliance issue down the road.

Final Thoughts

The CTA is now in effect, representing a groundbreaking shift in how the federal government monitors beneficial ownership of U.S. Reporting Companies.

Applications just opened on January 1st, 20224, but the new requirements officially take effect in 2025. You could face stiff penalties if you don’t comply by the start of next year.

Small businesses should also monitor news from FinCEN to determine if there are any new requirements or changes announced in the coming months.

Our tax pros are already helping our clients get a jump start on the new FinCEN reporting requirements, and they can help you too!

Slots are filling up fast for tax season 2024, so connect with a tax pro now for a one-on-one strategy session to see how much you can save on taxes this year.

 

Book your session now!