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January 12, 2021

New Law Requires Small Companies to Report 25% Owners (U.S. or Foreign)

Posted by Marcus Sharei

tax, taxes, dividends, investment income, interest

There is a new U.S. requirement to provide information to the federal government concerning the ownership of a company or similar entity formed under local state law. The new law, passed as part of the Defense Authorization Act of 2021, requires disclosure of 25% individual beneficial owners of U.S. entities.

Who Does This Apply To?

Corporations, limited liability companies, and other similar entities formed in the U.S. or foreign entities registered to do business in the U.S. must now report their beneficial owners (any U.S. or foreign individual who owns 25% or more equity interest in a U.S. legal entity) to the U.S. Department of the Treasury.

Who Is Required to File?

U.S. companies with 25% or more beneficial individual owners must make disclosure to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) bureau, unless they meet all three requirements below (exempted entities):

  • Employs more than 20 employees on a full-time basis in the United States
  • Filed U.S. federal income tax returns in the previous year demonstrating more than $5 million in gross receipts or sales in the aggregate (including the receipts or sales of other entities owned by the company and other entities through which the company operates)
  • Has an operating presence at a physical office within the United States

When Is the Filing Due?

Completion of a beneficial ownership statement must be filed with the Department of Treasury at these times:

  1. When the company is formed,
  2. When ownership changes (25% owner)
  3. If the entity was previously formed before passage of the Act (on Jan. 1, 2021), within two years after the effective date of the issuance by the Treasury Department of its final regulations

What Happens If You Do Not File?

Penalties for non-compliance under FinCEN generally include up to a $250,000 fine and five years imprisonment (if willful non-compliance).

Next Steps

Organizations should determine they meet the filing disclosure criteria and identify their 25% beneficial owners.

Contact our experts with any questions.

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