Congress mandated new beneficial ownership reporting requirements effective January 1, 2024 for legal entities. Failure to comply with these requirements carries massive penalties ($500 per day for each day of noncompliance). Willful failure to comply can also be considered a criminal offense. It is important to understand that these reporting requirements do not correspond to the requirements for filing tax returns. Even if an entity is not required to file tax returns, they may still be required to file the beneficial ownership reporting information to avoid the penalties. For example, a single member LLC owning a rental property would generally be required to file even though they do not file a separate tax return.
Trusts are treated as entities under these rules if they must register with the state as part of their formation.
Filing the beneficial ownership information requires a TIN for the entity. If the entity is a disregarded entity and does not have a TIN, it will need to obtain one prior to filing.
When is Reporting Required?
Reports are due for entities in existence on December 31, 2023 by January 1, 2025.
Reports are due for entities formed after December 31, 2023 by thirty days after the formation entity.
Updated reports are due thirty days after any changes in the information provided on the initial filing. Updates are not required for information on the individuals filing the initial Secretary of State filings unless those individuals are also treated as a beneficial owner. Following is a list of some of the changes that required updated filings:
- A change in the ownership of the entity,
- A change in the legal name of the entity,
- Use of an additional dba of the entity,
- A change in the state of domicile of the entity,
- A change in principal officers of the entity,
- A change in the physical address of the principal place of business of the entity,
- A change in the address of a principal officer or owner of the entity,
- A change in the driver’s license number of an officer or owner of the entity.
- A beneficial owner of the company who was previously a minor attaining the age of majority.
- A change from the entity being exempted from reporting to no longer qualifying for the exemption.
Are Annual Filings Required?
Based on the current rules, after the initial filing, additional filings are only required when information changes.
Who is Responsible for the Filing?
The reporting entity is responsible for the filings and for ensuring the accuracy of the filings. The company must certify that the report is true, correct, and complete. It’s important to recognize that this certification does not contain the limiting language, “to the best of their knowledge.” This language emphasizes the responsibility of the company of investigating and making sure that all the information in the filing is complete and accurate. The penalties for noncompliance can be assessed against individuals with substantial control of the entity, meaning either 25% ownership or significant operational control.
What Entities are Exempt From Filing?
There are 23 exemptions from filing beneficial owner information. Unfortunately, those exemptions are geared toward larger entities so that the burden of these rules falls primarily on small businesses. The details of the exemptions are beyond the scope of this update. Contact WhippleWood CPAs for more information on those exemptions.
WhippleWood services for complying with these requirements will only be provided under a separate engagement letter. In order for us to help you, you will need to start by providing a list of all your legal entities and trusts. We will then review that list and request additional information to complete the filings. We prefer to handle these filings the same time that we handle your income tax filings. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.