By Boyce F. Lowery, CLU, ChFC
Buried in the 1,480 pages of this year’s national defense bill is legislation that slaps new rules and regulations on beneficial owners and corporate transparency. The Corporate Transparency Act, which Congress passed in late December with the National Defense Authorization Act, went into effect on January 1, 2021. The new law requires corporations, limited liability companies, and other similar entities to disclose information regarding the entities’ beneficial owners to the Treasury Department. (1)
There is a lot to digest in this new law—far more than we can get to in this article. At Suncrest Advisors, we want to ensure that our clients and prospective clients at least understand the basics of the Corporate Transparency Act and how it will affect them as beneficial owners. Though we cannot provide legal advice, we have outlined some major themes of the new law.
Which Entities Are Subject to the New Law
Under the Corporate Transparency Act, limited liability companies and corporations are required to report ownership information to the director of Financial Crimes Enforcement Network (FinCEN). This includes beneficial owners of LLCs and corporations formed under state law, under the laws of a Native American tribe, and any LLC or corporation that was formed outside the country but is registered to do business in the United States. It is currently unknown whether this will include other business entities, including partnerships and trusts.
However, the new law does exclude some types of entities from reporting, specifically some businesses that operate within regulated industries, such as investment companies, public accounting firms, public utility companies, insurance companies, pooled investment vehicles, 501(c) non-profit organizations, banks, and credit unions, for example.
Other exceptions include any entity that has a location in the U.S. and has more than 20 full-time employees and more than $5 million in gross receipts or sales. Certain entities without assets or financial activities are also excluded from reporting. (2)
What Beneficial Owners Need to Know!
So, if you are required to report under this new law because of an entity you own, what information must you provide and how soon must you submit the new information?
Reporting entities must disclose the beneficial owner’s full name, date of birth, current residential or business address, and an identification number from a passport, driver’s license, or other identification document. Additionally, disclosure to FinCEN is required at the time an entity is formed, or if it was formed before January 1, 2021, disclosure must be made within two years after the effective date of the issuance of the Treasury Department’s final regulations.
All beneficial owners who own at least 25% of the ownership interest are required to disclose. However, there is an exception for individuals whose ownership of the reporting entity is inherited. (3)
The U.S. is not the first country to implement such measures. In fact, the new law follows an international trend in which countries, including former tax havens, have started requiring the disclosure of beneficial ownership. This is part of a worldwide attempt to cut down on individuals using such structures to hide funds received through criminal acts and money laundering schemes.
However, many details about the act have yet to be determined. For example, the new law does not provide a precise definition for “25% or more ownership.” It also uses the term “substantial control” to describe beneficial owners, but it is unclear what this specifically signifies. Guidance is also needed on whether the rules also pertain to beneficial owners of certain partnerships and different types of inter vivos trusts. Additionally, it is also unclear at this time whether the information provided to FinCEN would be subject to the Freedom of Information Act requests.
We’re Here for You
We will keep you posted on any guidance we might receive on the Corporate Transparency Act as soon as it is known. And in the meantime, we hope this clears up some questions you may have had about the new law and how it relates to you. If you have specific questions or concerns, don’t hesitate to call us at 888-827-0146. We can refer you to experts in this subject matter.
Boyce Lowery is a 40-year veteran and established expert in the insurance industry. As the managing partner of Suncrest Advisors, he, his partner, and their associates all aim to provide financial security and peace of mind to business owners, executives and professionals, and high net-worth individuals across the United States. Along with more than four decades of experience, Boyce is a Chartered Life Underwriter® (the premier designation for insurance professionals signifying specialized knowledge in life insurance and estate planning) and a Chartered Financial Consultant® (known as the advanced financial planning designation). To learn more, visit https://suncrestadvisors.com/ or connect with Boyce on LinkedIn.