IMPORTANT UPDATE: New Federal Reporting Obligations for Business Entities

Important Update: New Federal Reporting Obligations for Business Entities

If you have ever formed a corporation, LLC, or limited partnership to hold real estate assets or for other estate planning or business purposes, you should be aware of the new federal reporting obligations under the Corporate Transparency Act that likely apply to your business entities.

The Corporate Transparency Act was enacted in 2021 and went into effect as of January 1, 2024. It is designed to increase enforcement and prevention of financial crimes by promoting transparency in corporate entity structures and ownership. Many companies that were not previously subject to federal reporting requirements, such as smaller corporations, LLCs, and limited partnerships, are now required to report ownership information to the Financial Crimes Enforcement Network (“FinCEN”). Non-compliance risks civil penalties of up to $500 per day as well as potential criminal consequences, including imprisonment for up to two years and a fine of up to $10,000.

The Corporate Transparency Act requires all foreign and domestic corporations, LLCs, limited partnerships, and other entities created through a government filing (subject to certain exemptions), to identify and provide personal information for key personnel—including any individual who owns a 25% or greater ownership interest in, or who exercises substantial control over, the company — by filing a beneficial ownership information (“BOI”) report with FinCEN. Companies formed on or after January 1, 2024 will also need to include personal information for the individuals responsible for filing the entity formation documents.

Existing companies have until January 1, 2025 to file an initial BOI report with FinCEN, but new companies must report within 90 days of formation (and starting in 2025, new companies will have only 30 days to report). Moreover, any changes in previously reported beneficial ownership information must be reported within 30 days of the change.

In order to avoid penalties, it is important to file promptly and maintain accurate records. The first step is to confirm whether your company qualifies for an exemption to the Corporate Transparency Act reporting requirements. The second step is to identify each of the “beneficial owners” who need to be included in the BOI report and to gather their full legal name, date of birth, current address, and a copy of their driver’s license, passport, or other government-issued identification document.

FinCEN began issuing FinCEN identifiers and accepting BOI reports as of January 1, 2024. You can find more information and resources here: Beneficial Ownership Information Reporting | FinCEN.gov.

ALERT: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.