Have you prepared your business for the latest compliance requirements under the Corporate Transparency Act? According to the US Chamber of Commerce, the Corporate Transparency Act (CTA), which aims to combat illicit financial activities, now mandates that small businesses nationwide report their beneficial ownership information as of January 1, 2024. If you’re wondering how this will affect your business operations, accounting, and tax reporting, keep reading.
What Are the Beneficial Ownership Reporting Requirements?
What is Beneficial Ownership?
Beneficial ownership identifies any individual who directly or indirectly controls at least 25% of a business’s ownership or has authority to exercise substantial control over its operations. This could include the power to appoint or remove senior officers or influence critical decisions in the business.
Business owners are required to disclose their beneficial owners as part of these regulations. By knowing who controls a company, law enforcement can better prevent illegal activities such as fraud, money laundering, and terrorist financing. This transparency provides clarity and accountability, making it harder for “shell” organizations to obscure their true ownership structures.
Why Were These Requirements Introduced?
The Corporate Transparency Act (CTA) is part of a broader federal effort to curb financial crimes and enhance transparency within businesses in the US. The law requires reporting companies to file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN), the federal agency tasked with overseeing compliance.
By establishing a federal register of beneficial owners, the CTA aims to prevent shell companies from hiding illicit activities. This obligation increases accountability across the business landscape and equips FinCEN and other federal agencies with vital data to combat fraud, anti-money laundering (AML) activities, and terrorist financing.
How to File Beneficial Ownership Information
What Information is Required for Filing?
To fulfill this federal reporting obligation, businesses need to submit specific data for each beneficial owner directly to FinCEN. Information required includes the owner’s full name, date of birth, current address, and a unique identification number such as a passport or driver’s license.
Each reporting company must ensure this information is accurate, as FinCEN relies on precise data to identify ownership structures and exercise oversight. Reporting companies may also need to provide supporting documents that authenticate the owner’s identity, helping FinCEN maintain security and transparency within the business community.
Step-by-Step Filing Process
- Collect Owner Information – Gather the details required for each beneficial owner, ensuring dates of birth, addresses, and identification numbers are correct and current.
- Prepare Necessary Documents—Keep copies of each beneficial owner’s identification document as a record for secure and accurate filing.
- Submit to FinCEN via the FinCEN Website – Log into the FinCEN portal and submit your company’s beneficial ownership information through this secure federal platform.
- Confirm Filing – After submission, confirm your filing has been accepted and record the submission for future reference. You may also need to inform relevant company officers to retain compliance.
This report is due within 90 days of any changes in ownership structure, with an initial filing deadline to be met upon incorporation or when beneficial ownership changes. Avoiding penalties and complying with FinCEN requirements secures your company’s legal standing and transparency.
Further Reading: Explore the beneficial ownership information reporting requirement guidelines
What Businesses Are Affected by Beneficial Ownership Reporting?
Do All Entities Need to File?
Though certain exemptions exist, nearly all US corporations, limited liability companies, and similar domestic entities are required to file beneficial ownership information with FinCEN. Large operating companies, publicly traded companies, and specific financial institutions may be exempt due to pre-existing transparency obligations.
Organizations exempt from reporting often have a more public ownership structure or a high level of oversight, meaning their beneficial ownership data is already accessible. But, most small businesses in the US still need to know whether they qualify for exemptions and confirm their status to avoid unnecessary filings.
What Happens if You Don’t Comply?
Failure to file beneficial ownership information can lead to significant penalties, including civil fines of up to $591 per day and even criminal penalties, such as imprisonment for up to two years if an individual willfully provides false information.
The CTA underscores the importance of timely and accurate filing to avoid severe consequences, as law enforcement and federal agencies rely on this information to prevent financial crimes.
Filing on time and staying compliant protects your company from these penalties and promotes a culture of transparency within the business community, reinforcing security and accountability across the board.
Further Reading: What you need to know about tax compliance
How Beneficial Ownership Reporting Requirements Affect Accounting and Taxes
Implications for Bookkeeping and Record-Keeping
With beneficial ownership information reporting now mandatory, keeping up-to-date records isn’t just good practice—it’s vital for meeting compliance. Each time ownership changes, update your records to reflect the latest information on beneficial owners, including those with the authority to appoint or remove executives.
This also requires consistent accuracy in your bookkeeping to ensure the information submitted to FinCEN aligns with the law, reducing the risk of costly penalties or even up to two years of imprisonment for willful non-compliance.
Integrating beneficial ownership updates directly into your bookkeeping process will help you maintain transparency and accountability, ensuring you’re ready when it’s time to file beneficial ownership information.
How Filing Affects Your Tax Filing Process
Your tax filings and beneficial ownership records need to stay in sync to ensure transparency and accountability. For every change in ownership structure that requires reporting, there may also be tax implications—especially when foreign owners or those with significant financial control are involved.
Since beneficial ownership reporting to FinCEN can also require detailed ownership definitions, aligning this information with your tax filings will prevent conflicts and help you avoid audits. Here’s a best practice: maintain complete records of each owner’s financial contributions and distributions throughout the year.
This ensures that when you need to file beneficial ownership information by 2025, your tax documents will reflect the accurate, compliant picture that both FinCEN and the IRS expect.
Key Takeaways
- Submit Information to FinCEN: Beneficial ownership details must be reported to FinCEN.
- Risk of Imprisonment: Non-compliance may lead to two years' imprisonment.
- Prevent Terrorism Financing: Reporting aids in combating financing of terrorism.
- Ownership Details Are Essential: Identifying business owners is crucial for transparency.
- Trace Financial Sources: Helps trace the source of funds in business operations.
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