UPDATE: FinCEN Halts Enforcement on $500 Per Day LLC Penalties

By Ferd Niemann

The Corporate Transparency Act, effective from Jan. 1, 2024, introduced a transformative shift in the regulatory framework for business entities in the United States. This new legislation would have required a range of businesses, including limited liability companies, corporations, limited partnerships, and their beneficial owners, to file specific information with the Financial Crimes Enforcement Network (FinCEN).

A primary aim of the CTA is to combat financial crimes, such as money laundering and/or the financing of other crimes. It seeks to enhance transparency in business ownership. Its extensive scope includes large corporations, small businesses, and even entities established for estate planning purposes.

However, in early 2025, FinCEN announced it would halt enforcement on existing and future filings until the legislations could be rewritten — narrowed — most notably to apply to foreign entities only.

Original Exemptions and Implications

The CTA exempts 23 types of entities from the reporting requirements. While each exemption should be reviewed carefully, the most common exemptions are qualified charities, and business entities satisfying all three of the following criteria:

1. Has an operating presence at a physical office within the United States 
2. Has at at least 20 full-time employees
3. Has more than $5 million in gross receipts or sales the previous year, publicly traded entities or those otherwise regulated by the federal government

Note, many real estate investors purchase property via a special purpose entity, such as an LLC – many LLCs will not satisfy the above exemption requirements.

Defining Beneficial Ownership

A key aspect of the CTA is the requirement for the disclosure of beneficial ownership information. Beneficial ownership information includes certain information from individuals who either directly or indirectly exercise substantial control over a reporting entity, or directly or indirectly own/control 25 percent or more. 

Further, if a trust satisfies either of the above two requirements that define beneficial ownership, the trustee or beneficiaries may be considered beneficial owners under the CTA. Whether an individual has “substantial control” over a reporting entity requires an analysis of the provisions of the CTA.   

Detailed Reporting Requirements

The new rules require company information and beneficial owner information be reported.

Company information refers to a reporting entity’s basic organizational information. This consists of: 

— The full legal name and any trade or d/b/a names of the company
— The street address for its principal place of business
— State, tribal, or foreign jurisdiction of formation
— Employer Identification Number or foreign tax identification number

Beneficial Owner and Company Applicant Information is the main purpose of the reporting requirements under CTA and must be reported for each beneficial owner and company applicant. 

For each individual, this information should consist of: 

— Full legal name
— Date of birth
— Residential address (with limited exceptions)
— An image of and the unique identifying number shown on, any one of the following: A current U.S. passport, a current state-issued driver’s license, a current state, local, a tribal identification document; or if none of the foregoing are applicable to such individual, the individual’s current foreign passport.

Alternatively, reporting entities and individuals have the option to apply for a unique FinCEN identifier number from the Financial Crimes Enforcement Network. Once obtained, this identifier can be used in place of providing detailed personal information directly to FinCEN. It is crucial for entities and individuals to keep this information current. Therefore, similar to the necessity of updating and correcting beneficial ownership reports, any changes in the details provided in the FinCEN identifier application must be promptly reported through a revised application. This process ensures that the FinCEN database remains accurate and up to date, facilitating more efficient and effective oversight.

Reporting Timelines and Processes

The CTA sets specific deadlines for reporting. Those entities in existence as of Jan. 1, 2024, must submit BOI Reports by Jan. 1, 2025. Entities established between Jan. 1, 2024, and Jan. 1, 2025, are required to file BOI Reports within 90 days of their formation or public announcement. For entities formed on or after Jan. 1, 2025, the reporting window is 30 days from the date of formation or public announcement.

In addition to these initial reporting requirements, entities are obligated to report any significant changes. This includes updates to beneficial owners’ addresses or changes in the business address of the reporting entity. The 30-day window for reporting these changes underscores the need for ongoing vigilance and record-keeping.

Impact on Small Businesses

While the CTA primarily targets illicit financial activities, its impact on small businesses cannot be overlooked. Small business owners, often with limited resources, must navigate these new regulations, which could pose administrative challenges. Understanding the exemptions and seeking guidance when necessary can help mitigate these challenges.

Compliance and Penalties

Adhering to the CTA is mandatory, and non-compliance carries severe consequences. Non-compliance, defined by either failing to report or providing fraudulent information, can lead to civil penalties of up to $500 per day until the violation is rectified. Note that this is per company/LLC! In more severe instances, such as willful provision of false information, the penalties increase significantly, including fines up to $10,000 and imprisonment for up to two years. The severity of these penalties highlights the critical importance of understanding and complying with the CTA’s requirements.

Practical Steps for Compliance

Business owners must take practical steps to ensure compliance with the CTA. This includes conducting a thorough review of business structures to determine if they fall under the CTA’s purview, and identifying the beneficial owners who must be reported. It also involves setting up processes to collect, verify, and update the required information. Businesses may need to invest in new systems or seek external assistance to manage these requirements.

The information provided in this article does not, and is not intended to, constitute legal advice. All information contained herein is for general information purposes only. Readers should contact their own attorney to obtain advice with respect to any particular legal matter.

Ferd Niemann is a community owner/operator and real estate investor, financial analyst, entrepreneur, and attorney whose career has focused on myriad areas of real estate. In addition to his manufactured housing investments, Niemann has invested in storage units, apartments, restaurants, medical startups, and a handful of other ventures.