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Are you aware of the new filing nearly EVERY Corporation and LLC must file beginning in 2022?

The Corporate Transparency Act (“CTA”) passed by the Senate and House now requires annual reporting of an entity’s beneficial owners to the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) database. The new law defines a beneficial owner as any individual who directly or indirectly (i.e., through a second entity) exercises substantial control and holds at least 25% interest in an entity.

A few exceptions to the filing requirement do exist. Publicly traded companies subject to SEC requirements don’t have to file. Neither do Companies with more than 20 full time U.S. employees and over $5 million in gross sales. Presumably the IRS knows enough about such companies anyhow.

The rest of the country, small S-Corp operators, investors owning real estate LLCs and everyone else not excepted, a huge number of many millions entities, will have a new annual filing requirement.

The final regulations for this consequential increase in reporting have not yet been released. (We will let you know as soon as they are).

But the penalties for not filing are known. And they are serious.

An individual who doesn’t report can face civil penalties of up to $500 per day. Providing false information or willfully failing to report can result in criminal fines up to $10,000 and/or imprisonment for up to two years.

What information must be reported to the FinCEN database? So far it is known that the following information for each beneficial owner must be reported:

  • Full name
  • Date of Birth
  • Current residential or business address; and
  • A unique government issued ID number, such as a passport or driver’s license

Are you concerned about the privacy of this information? After all the public hacks of tax payer records (in which no one is even held accountable) your concerns are prudent. The law states that the FinCEN database shall be subject to limited access, but open to federal agencies (e.g., the FBI), state and local law enforcement agencies with a warrant, and foreign law enforcement agencies (e.g., Interpol).

Here at Corporate Direct we are concerned about helping our clients meet this requirement. The penalties, as mentioned, are significant for not doing so. Of course, you can handle this filing on your own. But many of our clients prefer our assistance (such as with annual state fillings and minute preparations to avoid a piercing of the veil), so they can do what they do best – manage their business and investments. In the coming months (as we learn the new regulations) we will provide you with information on how Corporate Direct can assist to meet the CTA’s annual filing requirements.