Compliance

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, enforces regulations to combat financial crimes in the United States. With new BOIR compliance, LLCs and corporations must file reports detailing beneficial ownership to FInCEN. FinCEN issues two types of IDs: one for reporting companies and another for individuals. It is important to understand important distinctions between the two.

The Financial Crimes Enforcement Network (FinCEN) safeguards the financial system against illicit activities using the Beneficial Ownership Information Reporting (BOIR) E-Filing System, enabling electronic submissions by financial entities. Users often face the "Invalid attachment" error, which occurs due to improper file formats (only JPG/JPEG, PNG, PDF accepted) or filenames with spaces/invalid characters. To resolve this, ensure files are correctly formatted and named.

The Corporate Transparency Act (CTA) mandates that LLCs and Corporations in the U.S. report detailed information about their beneficial owners and company applicants to FinCEN. This includes the full legal name, date of birth, residential or business address, and an identifying number from an acceptable ID document (such as a driver's license or passport), along with an image of the document.

A "Reporting Company" includes most corporations and LLCs but exempts large operating companies, regulated entities, inactive entities, and certain nonprofits. Reporting Companies must provide detailed beneficial ownership information to FinCEN and update changes within 30 days.

The Corporate Transparency Act (CTA) requires U.S. companies to report their beneficial owners—those with substantial control or 25% ownership—to the Financial Crimes Enforcement Network (FinCEN) to combat financial crimes. Reporting is mandatory by January 1, 2025, with updates within 30 days of changes. Entities dissolved before January 1, 2024, are exempt from reporting if the dissolution was formal and complete. Administrative dissolutions do not exempt companies from reporting.

Compliance with the Corporate Transparency Act (CTA) in the U.S requires updating Beneficial Owner Information Reports with FinCEN. Single-member LLCs and closely held corporations may only need a one-time report, but multi-member LLCs and corporations with multiple shareholders must continually update their beneficial owner information to avoid penalties of $500 per day, up to $10,000. Changes in ownership, management, or personal details must be reported within 30 days.

U.S. citizens and residents are taxed on worldwide income under a unique system called citizenship-based taxation, which is only practiced by the U.S. and Eritrea. The U.S. requires reporting of global income and compliance with complex rules like FATCA and FBAR. This system, known for its extensive reach, imposes significant reporting requirements and potential penalties for non-compliance. Understanding these obligations is crucial for effective tax planning.

The IRS Streamlined Filing Compliance Procedures assist various groups, including accidental Americans, digital nomads, and American expatriates, in rectifying unintentional failures to report foreign financial assets. Under this streamlined procedure, U.S. residents face a 5% penalty on the highest foreign asset balance, while non-residents typically incur no penalties. This process offers reduced penalties, a simplified disclosure pathway, and an opportunity for compliance.

FBAR compliance is crucial for U.S. persons and entities with foreign financial accounts exceeding $10,000 at any time during the year. The FBAR, FinCEN Form 114, must be filed annually by April 15 (with an extension to October 15). Non-compliance can result in severe civil and criminal penalties.

IRS Form 8938, the "Statement of Specified Foreign Financial Assets," is used by U.S. taxpayers to report certain foreign assets under FATCA. For those living or traveling abroad, singles or separate filers report assets over $200,000 at year-end or $300,000 anytime, while joint filers report over $400,000 at year-end or $600,000 anytime. Penalties include a $10,000 initial fine, up to $50,000 for continued failure, a 40% underpayment penalty, and potential criminal charges.