No, today is not April 1 and my fingers are not crossed.
The Treasury Department issued final rules requiring many private business, and virtually all small businesses, to disclose to the US government the identities of their owners and other basic information about them. The new disclosure requirement was mandated under the 2021 Corporate Transparency Act. The final rule takes effect January 1, 2024 and requires both newly-created and existing companies to file reports. Companies formed after January 1, 2024 will be required to file reports within 30 days of formation/registration. For existing companies, a report must filed within one (1) year. This requirement applies to both domestic entities and foreign (i.e., non-U.S.) which are registered to do business in a U.S. jurisdiction.
The report will require disclosure of details of every individual that directly or indirectly exercises “substantial control” over the company (a broadly defined term) or owns or controls 25% of the ownership of the company. The required details generally include their legal name, date of birth, current address, and one of a handful of unique identifying numbers (i.e., passport, driver’s licenses, etc.). A change in ownership also triggers a new filing requirement within 30 days.
There is good news for “large operating companies,” defined as companies with 20 or more employees in the U.S., a physical U.S. office, and $5 million or more of gross receipts reported on annual their U.S. tax return. They are exempt from this reporting requirement, along with a number of other businesses already subjected to government regulation or disclosure.
Treasury estimates that the new disclosure requirements will apply to about 32 million entities. Failure by these entities to report, as required, may result in civil and/or criminal penalties, which may include a maximum civil penalty of $500 each day the violation continues (up to $10,000), and imprisonment for up to two years.
In announcing the final rules, Treasury advocated that a national database of business ownership will help the Government crack down on shell companies’ engaged in criminal activity, such as money laundering and fraud. Further, Treasury announced its plans to share the information with select domestic law enforcement organizations as well as other countries collecting similar information as part of a global law-enforcement initiative and collaboration.
For those of you interested in reading more about this development, a link to the 308 pages of explanation followed by 22 pages of actual text is provided HERE.
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