By MichaelSilver
As we approach the year-end deadline, we want to remind you of an important regulatory change. The Corporate Transparency Act (CTA) went into effect on January 1, 2024, requiring compliance from many businesses. The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires disclosing the beneficial ownership information (otherwise known as “BOI”) for certain entities regarding the people who own or control the company.
It is anticipated that approximately 32.6 million businesses will be required to comply with this reporting requirement. The BOI reporting requirement intends to help US law enforcement combat money laundering, the financing of terrorism, and other illicit activity.
The CTA is not part of the tax code. Instead, it is part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing of certain types of financial transactions. Under the CTA, BOI reports will not be filed with the Internal Revenue Service (IRS) but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
For detailed guidance on compliance requirements, FinCEN provides comprehensive resources on its website, including Frequently Asked Questions (https://www.fincen.gov/boi-faqs) and a Small Entity Compliance Guide (https://www.fincen.gov/boi/small-entity-compliance-guide).
The new BOI reporting requirement represents a substantial change in corporate compliance obligations. With deadlines approaching, businesses should consult legal counsel to assess their reporting requirements.
Note: The following overview provides general guidance only. Consult legal counsel for situation-specific advice.
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs), or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Domestic entities not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs, or any similar entity formed under the law of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Among the exemptions are publicly traded companies, banks and credit unions, securities brokers/dealers, certain qualifying public accounting firms, tax-exempt entities, and certain inactive entities, among others. Please note that these are not blanket exemptions, and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S;
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
- Be physically present in the U.S.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company.
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over its important decisions. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
The detailed CTA regulations define “substantial control” and “ownership interest” further.
When must companies file?
There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
- New entities created/registered in 2024 must file within 90 days of their creation.
- New entities created/registered after December 31, 2024 must file within 30 days.
- Existing entities created/registered before January 1, 2024 must file by January 1, 2025.
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports must file within 30 days of the change or discovery of the inaccuracy.
What sort of information is required to be reported?
Companies must report the following information:
- Full name of the reporting company
- Any trade name or doing business as (DBA) name
- Business address
- State or Tribal jurisdiction of formation
- An IRS taxpayer identification number (TIN)
Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity, is required. This information includes:
- Name
- Birthdate
- Address
- Unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $591 per day and up to $10,000 with up to two years of jail time.
Assistance with Filing
For assistance with preparing and filing your company’s Beneficial Ownership Information (BOI) Report, we recommend working with qualified legal counsel. If you need help connecting with an attorney experienced in CTA compliance, please contact our office at 847-982-0333 for a referral.