by: Tom Andrews, CPA
Many yachting professionals operating as independent contractors have formed an LLC or S Corporation to conduct business. There are a variety of reasons why doing business as a company makes sense and many more reasons why forming a company will not make sense, however the topic of this column is to review a new reporting requirement that will take place in 2024.
The Corporate Transparency Act focuses on collecting information about beneficial ownership, which includes individuals who ultimately control or benefit from a legal entity, such as a corporation or a limited liability company (LLC). Beneficial ownership information has long been a blind spot in the fight against financial crime, allowing individuals to hide their assets, evade taxes, and engage in illegal activities with relative impunity. This new law seeks to close that gap.
Under the Act, certain entities are now required to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury responsible for combating money laundering and other financial crimes. The Act’s requirements apply to corporations, LLCs, and similar legal structures, whether domestic or foreign, that operate in the United States. Exemptions are made for specific types of businesses, such as publicly traded companies, registered investment companies, and certain charitable organizations.
Beneficial ownership information will include the names, dates of birth, addresses, and unique identification numbers, such as a driver’s license or passport number, of individuals who hold substantial ownership interests or exert substantial control over the entity. This information will be kept in a confidential database accessible to authorized government authorities, including law enforcement and regulatory agencies.
The Act not only obliges entities to provide initial beneficial ownership information when they are formed but also mandates them to report any changes to this information within a certain timeframe. This dynamic approach is crucial in ensuring that the information remains accurate and up to date, thereby making it harder for individuals to hide their involvement in illicit activities.
The Corporate Transparency Act not only aids in the fight against financial crime but also has significant implications for businesses. Compliance with these new rules can be somewhat burdensome for entities with many partners or shareholders however I do not believe this new reporting requirement will be overly burdensome for single member LLC’s or S corporations with one or two shareholders.
As of the writing of this column the act will become effective January 1st, 2024. Companies formed before January 1st, 2024 must file their initial Beneficial Ownership Information (BOI) report by January 1st 2025 on the Treasury Department FinCEN. Companies formed after January 1st, 2024 must file their initial reports within 30 days of that entity being formed, however there is a proposed rule to extend that time to 90 days.
If you currently own your own company and have trouble navigating the FinCEN reporting platform I would recommend you connect with your accountant or attorney for the latest information regarding this new reporting requirement.