Beneficial Ownership Reporting

On December 16, 2023 the House of Representatives passed HR 5119, which would change the reporting dates listed below.

In recent years, more companies and individuals than ever before have been using corporate structures such as shell corporations and front companies to launder money and hide it from the Internal Revenue Service so it does not get taxed. In response to this, the Financial Crimes Enforcement Network recently issued a final rule implementing reporting provisions to protect small U.S. businesses who are playing by the rules.

When does this start?

The effective date for the rule is January 1, 2024.

Who must file the reports?

All companies that are created by a filing with a state must file, except for a few exemptions. The more common exemptions include certain types of banks, most tax-exempt entities, and large companies that have (a) more than twenty full time employees, (b) more than $5,000,000 in gross receipts, and (c) an operating presence at a physical office within the United States. It is important to note that certain trusts and other entities that are not created by a filing with a state do not need to be reported.

What must be reported?

There will be two new reports that a company must report if it is not exempt. They are a report showing the Beneficial Owners and a report showing Company Applicants.

On the report of Beneficial Owners, a company reports its:

  • Legal and trade name,
  • Address,
  • Jurisdiction in which the entity was formed, and
  • Federal taxpayer’s identification number

The report must also list the following for each Beneficial Owner:

  • Legal name,
  • Birthdate,
  • Address,
  • Identifying number (driver’s license, passport, or other approved document is specifically listed), and,
  • An image of the approved document

A Beneficial Owner is defined as any individual who either:

  1. Exercises substantial control over the reporting company (makes important decisions), or
  2. Who directly or indirectly owns or controls at least 25 percent (directly or indirectly) of the reporting company

On the report showing Company Applicants, a company must report each Company Applicant. A Company Applicant is defined as the individual who:

  1. Directly files the document that creates or registers the reporting company and
  2. The individual who is primarily responsible for directing or controlling that filing

It specifically states that only two people can be reported and only one person is reported if (A) and (B) are the same individual. Third parties such as attorneys and paralegals may also be considered Company Applicants.

When must the reports be filed?

The initial report of Beneficial Owners must be filed within 90 days after receiving notice of the company’s creation from the state if created or registered in 2024, and within 30 days if crated or registered in 2025 or later. Companies that are registered before January 1, 2024, though, have one year to file its initial report. A change to the information in the report or an in accuracy to a previous report must be filed within 30 days of when the company becomes aware of the change or inaccuracy.

Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection of relevant ownership information.