Required FinCEN Beneficial Owners Reporting

                                             Required FinCEN Beneficial Owners Reporting

In addition to the mandatory filings, such as tax returns, Congress now requires all newly formed corporations, limited liability companies (LLCs), limited partnerships, and other entities filing formation papers with their respective Secretary of State (or similar agency) to file specified information about their “beneficial owners” with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

For existing entities, this requirement begins on January 1, 2025.

Non-compliance carries a civil penalty of $500 per day with no maximum limit. Criminal penalties can reach up to $10,000 and/or two years of imprisonment. These penalties apply to both the entity and the individuals involved, particularly senior officers or managers.

This new requirement is part of the current administration’s anti-money laundering and tax evasion efforts. However, IRS statistics indicate that the majority of tax fraud occurs in social welfare tax credit programs like the Earned Income Tax Credit (EITC), with fraudulent claims exceeding $4 billion annually. Despite this, the business sector is often portrayed as the primary source of tax evasion, even though IRS audits have shown that businesses are generally tax-compliant.

Implementing this new program will be costly for businesses. It imposes additional reporting requirements on all businesses except for "large companies," defined as those with over 20 full-time employees or over $5 million in gross receipts on their U.S. tax return.

Beneficial owners are broadly defined to include anyone who directly or indirectly holds ownership, exerts control, or provides management services, encompassing senior officers and significant decision-makers like board members. Given the severe penalties, it is advisable to report everyone who might be considered a beneficial owner or involved in management.

Entities formed after 2023 must provide information about company applicants (individuals responsible for the formation/registration of the entity). Entities formed in 2024 have 30 days from their formation date to file with FinCEN.

Required information for beneficial owners and managers includes:

• Legal name
• Residential address
• Date of birth
• Current photo ID (government-issued)
• Unique identification documents such as:
• Driver’s license
• Non-expired passport
• State identification card

Existing entities formed before 2024 must start filing on January 1, 2025. Any changes in the reported information, such as changes in beneficial ownership, address, name, passport status, etc., must be reported to FinCEN within 30 days to avoid penalties.

Reporting is mandatory for changes due to sales, death, relocation, marriage, passport renewals, and other alterations. Disregarded entities and small LLCs reported on personal income tax returns must also comply.

According to FinCEN statistics, less than 3% of those required to file have done so to date, suggesting a likely rush to comply by year-end.