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January 17, 2024
Sometimes when explaining a law to a client, the client seems to get upset with me. I remind the client that I was not the politician who passed the law; I’m just helping the client understand and follow the law. The Corporate Transparency Act is a new law that may upset clients.
The Corporate Transparency Act was passed to prevent money laundering, corrupt financial transactions and financial terrorism. It requires almost all limited liability companies, corporations and limited partnerships to report certain information about the owners of any of those entities to the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury. There are civil and criminal penalties for failing to report this information.
It should be noted that if you are a sole proprietorship, a general partnership or a trust (at least, a trust in Wisconsin), you are not required to report anything. Also, a corporation, LLC or limited partnership that meets the following three requirements is not required to file:
has a physical presence in the U.S.
has at least $5 million in annual U.S.-sourced gross revenues or receipts
employs at least 20 full-time employees
There are other limited exceptions that do not have to report, but most would not apply to my clients.
If you operate your farm as an LLC, limited partnership or corporation, you have to report. If you and your brother own some hunting land or a cabin together in an LLC, limited partnership or corporation, you have to report. If you still have some farmland in a corporation that was formed in 1979 and that corporation does nothing else but own that land, you have to report.
If your LLC, corporation or limited partnership was filed with the Wisconsin Department of Financial Institutions prior to Jan. 1, 2024, your first report is due by Dec. 31, 2024. If your LLC, corporation or limited partnership was filed on or after Jan. 1, 2024, but prior to Jan. 1, 2025, you have 90 days from when the entity was filed with the Department of Financial Institutions to report. If you file your new entity on or after Jan. 1, 2025, you have 30 days to report from when it was filed.
Finally, if there is a change in a “beneficial owner” of your legal entity, you have 30 days from that change in ownership to report.
Each entity must report its full legal name and any trade name or “doing business as” name, its street address of its principal place of business, the state in which it was formed and its taxpayer identification number (usually its federal employer identification number).
In addition, for each “beneficial owner,” which generally is someone that owns at least 25% of the entity, you must report that person’s full legal name, birthdate, a complete address and include an identifying number from a non-expired driver’s license, passport or other approved document, as well as an image of the document from which the identifying number was obtained.
Determining each “beneficial owner” can be simple when it is just you or you and your spouse who owns the legal entity. It can be simple when there is only one kind or class of shares or units in the legal entity. It can be more complex if your legal entity has profits interests, preferred units or preferred shares, call options, or other contracts. In those more complex situations, it can make sense to contact your attorney and/or accountant to help determine who meets the definition of a “beneficial owner.”
If your legal entity was created prior to Jan. 1, 2024, you can go to boiefiling.fincen.gov to file the report. If your legal entity was formed or is formed on or after Jan. 1, 2024, and you had your attorney or accountant file the report, then that attorney or accountant is what’s called a “company applicant,” and that person should at least file the initial report. If you file your legal entity with the Department of Financial Institutions yourself, then you would be the “company applicant.”
In a sense, for LLCs, limited partnerships and corporations taxed as S corporations, this new reporting requirement does not require the disclosure of anything new to the government, since the tax returns for those entities already indicate the percentage of ownership. Also, the government is the place that gave you your passport or driver’s license.
For corporations taxed as C corporations, where ownership is not reported to the IRS, reporting ownership of the corporation to the government is new. Besides including a copy of your driver’s license or passport, the most cumbersome requirement is to report any ownership change within 30 days of when the change was effective. If you need help with this new filing requirement, do not hesitate to contact your attorney.
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