New entity ownership reporting requirements to start in 2024 

This is part of the federal government’s anti-money laundering and anti-tax-evasion efforts and is an attempt to look beyond shell companies that are set up to hide money. Unfortunately, this will impose burdensome reporting requirements on most businesses, and the willful failure to report information and timely update any changed information can result in significant fines of up to $500 per day, or if criminal charges are brought, fines of up to $10,000 or imprisonment. These penalties can be imposed against the beneficial owner and/or against the entity.

Beneficial owners are broadly defined and involve owners who directly or indirectly own more than 25% of the entity’s ownership interests or exercise substantial control over the reporting company (even if they don’t actually have an ownership interest). While this may seem to only impact a few significant owners, it can encompass many senior officers of the business as well as those individuals who are involved in any significant business decisions. Given the severity of the fines, it may be safer to err on the side of overinclusion rather than under inclusion.

The types of information that must be provided (and kept current) for these beneficial owners include the owner’s legal name, residential address, date of birth, and unique identifier number from a non-expired passport, driver’s license, or state identification card. The entity will also have to provide an image of any of these forms of documentation to FinCEN for all beneficial owners.

Should any of this information change, or a beneficial ownership interest be sold or transferred, the entity will have to report this information within 30 days of the change or face the potential of having the penalties described above imposed.

It’s important that we discuss who might be treated as a beneficial owner in your business and what systems you can put in place to ensure that the information regarding these beneficial owners is kept current. Please contact our office to schedule an appointment.

For more helpful tax and accounting articles, or to sign up for our newsletter, please visit our KKB Insights page. If you have any questions, please contact us.