New Reporting Requirements: Navigating the Complex Landscape of Beneficial Ownership for Small Businesses in 2024

Once again our federal government has, in it’s infinite wisdom, added yet another form of required reporting for small business owners. This one is a purely administrative burden, but has a tremendous amount of pitfalls and penalties if not done timely and correctly. This is not a tax reporting, you can file the forms yourselves. I mainly want to bring the requirement to your attention because I have not heard much about it in general conversation, so many of you may not even know this is out there, but I have heard much about it in my tax world and it is something you are all subject to whether you are aware of it or not. It is something I can help you with or file on your behalf. That will be for you to decide once you have looked into it.

Starting in 2024 newly formed, corporations, limited liability companies (LLCs), limited partnerships, and other entities that file formation papers with a state’s Secretary of State’s office (or similar government agency) must file a report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) providing specified information regarding the entity’s “beneficial owners.” Entities in existence prior to January 1, 2024, have until January 1, 2025, to file these reports.

This is part of the federal government’s anti-money laundering and anti-tax evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will impose burdensome reporting requirements on most businesses, and the willful failure to report information and timely update any changed information can result in significant fines of up to $500 per day until the violation is remedied, or if criminal charges are brought, fines of up to $10,000 and/or two years imprisonment. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report.

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or an individual who can exercise substantial control over the reporting company (even if they don’t actually have an ownership interest). This can encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions (e.g., board members, nonowner officers). Given the severity of the fines, it may be safer to err on the side of including an individual who may be questionable rather that excluding them.

For entities formed after 2023, information will also have to be provided about the company applicants (the person who actually files the formation/registration papers and the person primarily responsible for directing or controlling the filing of the documents).

The types of information that must be provided (and kept current) for these beneficial owners include the owner’s legal name, residential address, date of birth, and unique identifier number from a nonexpired passport, driver’s license, or state identification card. The entity will also have to provide an image of any of these forms of documentation to FinCEN for all beneficial owners.

Most entities must file these reports by January 1, 2025. However, entities formed in 2024 will have 90 days from the entity’s formation/registration to file these reports. Entities formed after 2024 must file the report within 30 days of the entity’s formation/registration.

Should any of the reported information change or a beneficial ownership interest be sold or transferred, the entity must report this information within 30 days of the change or face the potential of having the penalties described above imposed. Changes include reporting a beneficial owner’s change of address or name, a new passport number when a passport is replaced or renewed, or providing a copy of a renewed driver’s license.

It’s important that this not be ignored or fall to the wayside, the penalties are steep. If you would like my assistance please let me know. We can discuss who might be treated as a beneficial owner in your business and what systems we can put in place to ensure that the information regarding these beneficial owners is kept current. Please contact my office to schedule an appointment to discuss this further.