In an effort to crack down on money laundering and other illegal activities Congress passed the Corporate Transparency Act effective Jan. 1, 2021. We finally received proposed regulations from the Financial Crimes Enforcement Network on Dec. 7, 2021.
It is likely you will need to report all current business entities to the government in 2023. Any new entities must file within 14 days of formation.
THE REQUIRED REPORTING
1. What entities are required to report information on beneficial owners?
Any entity is required to file with an applicable secretary of state or similar agency. This includes any legal entity a farm operation uses, such as an LLC or corporation filed with the state.
2. What is a beneficial owner?
Any individual who directly or indirectly controls at least 25% of the entity. There are three indicators of control:
- Service as a senior officer.
- Authority over the appointment or removal of any senior officer or board of directors or similar person.
- Direction, determination or decision of or substantial influence over important matters of the company.
3. What information must you report?
For each beneficial owner, report:
- Full legal name
- Date of birth
- Current address
- A unique identification number (social security number, federal identification number, etc.).
4. Are certain entities excluded?
Yes; however, for most farm operations, the only one that would apply is if you are a large operating company defined as:
- Filing a previous year federal income tax return showing at least $5 million in gross receipts.
- Employs more than 20 employees on a full-time basis in the U.S.
- Has a physical presence in the U.S.
5. What do you report about the entity?
- Name (and alternative names)
- Business address
- Jurisdiction of formation
- Unique identification number
6. What is the penalty for not reporting?
The entity can be fined up to a $500 civil penalty per day for not reporting. Or it may be fined up to $10,000 and imprisoned for up to two years for a criminal violation.
THE BOTTOM LINE
Be ready to provide this information. All current entities must file sometime in the near future (unless you are a large operating entity). As shown, the penalties can be harsh for not filing.
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Paul Neiffer is a tax principal with CLA and author of the blog, The Farm CPA. He grew up on a farm in central Washington and still resides in the state.
