FinCEN cracks down on LLC ownership to find tax fraud

On Behalf of | Mar 18, 2022 | Business Tax, Criminal Tax Issues

The federal government recently announced an attempt to crack down on the use of legal entities like limited liability companies (LLCs) and partnerships to engage in illegal activities like money laundering and tax fraud. The government aims to achieve this goal by increasing reporting requirements, as outlined in a recent proposal.

The Financial Crimes Enforcement Network (FinCEN) states that if implemented, the proposal would help the feds use the requirements within the Corporate Transparency Act (CTA) to gather information about beneficial owners and company applicant information to help promote financial transparency and compliance with applicable laws and regulations.

The government is pushing hard to move this proposal forward, so it is a good idea to understand the basics. As currently proposed, the reporting rule asks the following:

#1: Who would file?

The proposal applies to both domestic and foreign companies. It requests information about beneficial owners and describes a beneficial owner as an individual who either exercise substantial control over the reporting company or has at least a 25% ownership interest.

#2: When are the filings due?

It is important to clarify that this proposal is not yet in effect. We will provide an update when actual dates are available.

If it does go into effect, the government will expect the initial report one year from the effective date of the final regulations. The regulations would then require those created after the regulations are in place to file the initial report with FinCEN 14 calendar days after their registration or creation date. If a reporting company makes changes, they have 30 calendar days to file an updated report.

#3: What type of information will FinCEN require?

The filings would include identification information such as the name and address of each beneficial owner or a unique identifier as issued by FinCEN (the FinCEN identifier).

It is important to note that if adopted, the proposal would require some information and encourage other information. Determining the right information to share will vary depending on the situation. Those who are filing out these forms are wise to reach out to legal counsel to help distinguish between the two. The attorneys at Goldburd McCone are experienced in tax matters such as these and can provide guidance throughout the process.

The proposal comes with some serious repercussions for those who fail to abide by its terms. As currently written, it will be unlawful to provide false information or to willfully fail to complete the beneficial ownership information to FinCEN. The government would be able to pursue both civil and criminal penalties for those who fail to follow these regulations. Civil penalties would include a fine of up to $500 for each day of the violation and up to $10,000 and two-years imprisonment for a criminal violation.