A new reporting requirement has kicked in this year and lots of people will be affected.
The reason for the requirement is a growing perception that ultra-wealthy oligarchs, bad actors and others are seeing us — the United States — as a haven where they can park money or assets in entities, like limited liability companies, corporations or partnerships, and then obscure the ownership of the entities through agreements or understandings through which one person is on record in the corporate filings, but another person actually calls the shots.
Other countries require the identities of those with “beneficial ownership interests” (BOI for short) to be reported to the government. Ours hasn’t required this reporting but will now.
The law making this change is called the Corporate Transparency Act, which became law in January 2021 after Congress overrode President Trump’s veto of the William M. Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, of which the Corporate Transparency Act was a part.
Starting this year, covered entities, loosely defined as any legal entities created by filing a document with a state or tribal office, will need to report their beneficial owners to FinCEN (Financial Crimes Enforcement Network). FinCEN is the Treasury group set up to catch money laundering and related crimes.
You may have heard of them because if you are filling out your income tax return and you have $10,000 or more in a foreign financial account over which you have control, then you need to check a box on your return and file a separate report with FinCEN.
Some entities are exempt from BOI reporting, such as SEC-registered entities, tax-exempts and regulated businesses in the financial sector. FinCEN has put out a more comprehensive guide here.
New entities generally have 30 days to report, although 90 days will be allowed for entities formed in 2024. Existing entities must report sometime this year. Hefty fines and penalties await those who are found noncompliant, as in civil fines of $500 per day of noncompliance and the possibility of a criminal conviction with a $10,000 fine and two years imprisonment per willful violation.
Actual filing is done on a FinCEN website. The filing doesn’t cost anything. I tried it myself because I have a single-member LLC that holds my law practice. The website offers two options: download a PDF, fill in the information, and upload the finished version; or fill in the form on the website directly.
At this point, I don’t recommend the PDF. It gave me some strange issues. For example, when asked to validate my identity, one of the options was “U.S. Passport.” I selected that and duly uploaded my passport photo page, but the PDF then said my information couldn’t be validated because I didn’t specify the country of my identity document (which, by the way, was grayed out in the PDF when I selected “U.S. Passport”).
I tried switching to a state driver’s license, saved the PDF, but the required “Ready to File” button stayed grayed-out and couldn’t be pushed, without any obvious explanation. After that, I rage-quit dealing with the PDF, used the direct entry system instead, and had no problems filing.
That bad BOI was kind of exasperating for me; but it doesn’t have to be that way for you. Good luck filing!
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Tom Yamachika is president of the Tax Foundation of Hawai‘i.
