FinCEN’s New Reporting Requirement: What Does It Mean for You?

*UPDATE: The Federal District Court recently ruled that the Corporate Transparency Act (CTA) is unconstitutional and is permanently prohibiting the enforcement of the CTA. Read through an updated article here: An Update on the Corporate Transparency Act: 3 Things You Need to Know

Key Podcast Highlights

What Is the New Mandate Impacting Businesses in the United States?

• There’s a new mandate where you have to report to the federal government this year, the beneficial owners of your business.
• This mandate is coming from the Financial Crimes Enforcement Network, or FinCEN, which is part of the Treasury Department.
• The new rule is impacting most businesses in the United States, so you’ll likely have to file whether you’re a corporation, S corporation, partnership, etc.
• Under this rule, you’ll need to report any stockholders that own 25% or more of your company. However, it’s not just ownership by shares, you’ll need to report anyone with profit interests, warrants, options or other instruments like convertible notes. The definition of an owner also includes anyone with substantial control over your entity, including a CEO or CFO or chief operating officer.

What Is the Goal for This New Rule?

• FinCEN wants to identify any potential bad actors that are owning businesses.

When Do You Have to Report Beneficial Owners By?

• It begins on January 1^st of 2024 and you have to do the reporting by the end of the year on December 31^st.

Transcript

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Gene (00:02):

Hey everybody, it’s Gene Marks. Welcome to another episode of the Hartford Small Biz Ahead podcast. Thank you so much for joining me. This week, I wanna talk to you about a new federal mandate, which you probably don’t know about and you really need to know it. Apparently, this mandate is not getting the kind of attention that it should be getting and it’s a bit concerning to me in some of my clients. So, let me make sure that you’re aware of this. There’s a mandate where you have to report to the federal government this year, the beneficial owners of your business. Yeah, that’s right. It’s a new reporting requirement. It began on January 1st of this year, and you have to do the reporting by the end of the year, December 31st. And it comes from the Financial Crimes Enforcement Network, or FinCEN, which is part of the Treasury Department.

Gene (00:52):

And the goal that FinCEN has, this is under the 2021 Corporate Transparency Act, is to identify any potential bad actors or nefarious people that are owning businesses in the United States. Now, do you have to file, well, probably so. I mean, just about all entities are part of this. I mean, whether you’re a corporation or an S corporation or a partnership, or you have a benefit plan. If you are a sole proprietor and you don’t have that kind of an entity, but you’re just a sole proprietor. You file a Schedule C on your tax return, you’re not gonna need to file this. So that, that’s good news. But if you do, then you need to go to their website. And by the way, there’s, I’m gonna give you some resources at the end of this conversation, but you’re gonna have to report any stockholders that own 25% or more of your company.

Gene (01:42):

And by the way, it’s not just like ownership by shares. I mean, they might have profit interests or options or warrants or other instruments like convertible notes. Now, that’s not the only definition of a beneficial owner. It’s also somebody that, that exercises substantial control over your entity. So even if a chief, a senior executive doesn’t own 25%, but they’re a CFO or a CEO or a general counsel, or a chief operating officer or very involved member of your board, that person can consider to have substantial control over your entity and would also have to be reported. Now, there are 23 kinds of entities that are exempted from this rule. They include like banks and credit unions and tax exempt entities. They also include companies that are considered to be large companies, basically, companies with revenues of more than $5 million or with more than 20 employees.

Gene (02:46):

So if you’re one of those companies, maybe you’ve got more than 20 employees, or your revenues are more than $5 million, you would definitely be exempted from this. So, you’re gonna need to look at some more detail on this. And again, I’m gonna, I’m gonna give you where to go in just a minute. Now, I mean, the information that you have to report, well, you’ve gotta, obviously for your company, you’re gonna have to report your company’s main information. It’s contact information, it’s tax ID numbers. You’re also gonna have to provide an image of your articles of incorporation, which you might have to get from your state. Then for the beneficial owners that you’re listing, you have to provide all their contact information as well as an image of their passport or driver’s license or a state document or a document issued by an Indian tribe.

Gene (03:32):

And like I said, all this has to be done by the end of this year. Now, if you’re a new entity, if you create a business this year, you’ve gotta file this within 90 days of creating the entity. But I’m telling you, if you don’t, if you don’t do this this year, you could be facing penalties of up to $10,000 or up to two years in jail if you report the wrong information willfully. So you really wanna make sure that you’re in compliance here. Now, my recommendation is probably to have your accountant or your attorney get involved and I’m gonna be doing that with my business, having my accountant do it ’cause who’s got the time.

Gene (04:13):

But you’re still gonna have to supply this information and spend a little bit of time. So if you wanna file this report, you go to FinCEN’s website. It’s F-I-N-C-E-N.gov/boi beneficial owner information. So that’s the main website where you go. The other thing I really recommend that you do, you can google this because the URL is a little bit long, but FinCEN has issued what’s called a Small Entity Compliance Guide. So if you just Google FinCEN, F-I-N-C-E-N, Small Entity Compliance Guide, you’ll find it, it’s got all the information that you need and all the rules that you need to know so that you can follow to make this filing correct. And by the way, FinCEN on its main site also has a good frequently asked questions page as well. That’ll fill all of this in. So the bottom line is this, it’s a new reporting requirement.

Gene (05:05):

It is effective. Now, you gotta do it by the end of the year, you’re reporting your beneficial owners of your company, shareholders and people that exert substantial influence. And most entities fall under this unless you’re like a bank or an accounting firm or a credit union, or you’ve got more than 20 employees and more than $5 million a year in revenue. Otherwise, for every entity that you’ve got, shell companies, small partnerships, whatever, all of this reporting needs to be done individually for each of those entities. So you might wanna make your plans and get on it so that it happens sooner rather than later. My name is Gene Marks. You have been listening to this week’s edition of the Hartford Small Biz Ahead podcast. If you need any tips or would like some advice or help in running your business, please visit us at SmallBizAhead.com or SBA.TheHartford.com. Thank you so much for joining me this week. I will see you again next week with some more advice and information to help you run your business. Take care.

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