On September 29, 2022, the US Treasury Department Financial Crimes Enforcement Network, “FinCEN”, issued its final rule implementing requirements to report beneficial ownership information from certain entities under the Corporate Transparency Act. The goal of this legislation is to fight the financing of terrorism and money laundering. The rule takes effect on January 1, 2024. Any “reporting company” existing or registered before then must file an initial report by January 1, 2025. Any reporting company created or registered after January 1, 2024 must file its initial report within 30 days after creation or registration.
What is to be reported? FinCEN is in the process of creating forms for this and will publish such in the Federal Register. Failure to comply with the reporting requirements can lead to civil and criminal penalties including a maximum civil penalty of $500 per day, up to $10,000, and imprisonment for up to two years.
Who must report? Domestic companies including smaller corporations, limited liability companies, limited liability partnerships, limited liability limited partnerships, business trusts (statutory trusts or Massachusetts business trusts) and limited partnerships. For example, if you have an LLC that owns a rental property, the LLC is a reporting company. Foreign companies operating in the USA under the law of a foreign country and registered to do business in any state or tribal jurisdiction, or any entity created by filing a document with a secretary of state or similar state or tribal office, are also included.
There are 23 categories of entities exempt from reporting. It appears that most estate planning trusts will not have to report to FinCEN. To be a reporting company the trust would have to file a registration document with a secretary of state or similar state or tribal office; most revocable and irrevocable trusts do not do this. Charitable trusts are specifically exempt from reporting.
Even though most trusts will not qualify as reporting companies, the law impacts any entity with an ownership interest in a U.S. company, including foreign trusts. Reporting companies must report to FinCEN each owner that owns more than 25% of the company, including trusts, regardless of where the trust is domiciled and whether it is registered with any secretary of state.