Gabriel Katzner - January 31, 2024 - Asset Protection
San Diego estate planning lawyer

The Corporate Transparency Act is a new law, effective January 1, 2024, that was enacted to help combat money laundering, tax fraud, terrorism financing, and other illegal acts.

Owners of certain business entities, such as corporations, limited liability companies, and family partnerships, must file a report with the federal government.

This report includes information on the entity’s ownership. If you own a business or have beneficial ownership in a business, it is essential that you understand the requirements of this law and ensure that you comply with it.

What is the Corporate Transparency Act?

Congress enacted the Corporate Transparency Act in 2021. By requiring all beneficial owners to report their ownership details, the U.S. government hopes to make it harder for bad actors to hide their gains through shell companies or other opaque business structures.

The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) requires all business entities that are not exempt to disclose certain information about the company and its beneficial owners.

According to FinCEN, reporting companies include:

  • A corporation
  • Limited liability company
  • A company that was created by filing a document with the secretary of state
  • A company that was created by filing a document under the law of a state or Indian tribe
  • A company that was registered to do business in any U.S. state or Indian tribe by such filing

FinCen offers a Small Entity Compliance Guide with checklists to help business owners determine whether they are exempt from filing. Most exempted businesses are in industries that are already highly regulated and have their own reporting requirements.

Examples of exempt companies include entities that were not created by filing with the secretary of state, such as sole proprietorships and some trusts, banks, credit unions, tax-exempt entities, public utilities, and some large companies.

The beneficial owner is anyone who:

  • Has significant equity (25% or more ownership interest) in the reporting company.
  • Exercises substantial control over the reporting company.

For companies created on or after January 1, 2024, company applicants will also need to report. A company applicant is the individual(s) who files the document that creates the entity or who is responsible for directing or controlling the filing.

How do you report this information?

Reporting companies can file their reports electronically through FinCEN’s website. Companies formed or registered prior to January 1, 2024, have until January 1, 2025, to comply. Companies created after January 1, 2024, or companies needing to make updates, will have 90 days to comply in 2024 and 30 days in 2025.

When filing your report, have the following information available about the company:

  • Legal name (including any trade names or doing business as names)
  • Complete U.S. business address (principal place of business in the U.S. or the address where a foreign company conducts its business in the U.S.)
  • State, tribal, or foreign jurisdiction where the business was formed
  • Tax identification number (TIN) or foreign tax ID

You will also need the following information for the beneficial owner:

  • Full legal name
  • Date of birth
  • Current residential address
  • Unique identification number from an acceptable document such as a passport or driver’s license or an identification document issued by a state, local government, or Indian tribe, its issuing jurisdiction, and an uploaded image showing the unique identification number.

What is a FinCEN Identifier?

A FinCEN identifier is a unique identification number that FinCEN issues to an individual or reporting company. This number is issued upon request and after the individual or company reports certain required information to FinCEN.

How does the Corporate Transparency Act Impact Estate Planning?

Many people use limited liability companies (LLCs) and family partnerships to manage family investments, to manage assets, to maintain privacy, for estate planning transfers, and as family trust companies.

If a trust has substantial control over a reporting company or owns or controls 25% or more of the ownership interest in a reporting company, in some cases, the beneficiaries and the trustee must be reported. The Corporate Transparency Act is a nuanced law, so if you are a trustee or beneficiary of a trust, it is essential to discuss your reporting requirements with your estate attorney.

What if you do not report your beneficial ownership information?

Willfully violating this law can result in civil and criminal penalties.

Speak to a trusted advisor to learn more about how the Corporate Transparency Act may impact you estate planning. Contact us and schedule a call with us at 855.631.3457 to learn more about how to protect those most important to you.

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