Corporate Transparency Act — Beneficial Ownership Information
Reporting Requirement
Corporate Transparency Act — Beneficial Ownership
Information Reporting Requirement Starting January 1, 2024, a
significant number of businesses will be required to comply with the
Corporate Transparency Act (“CTA). The CTA was enacted into law as part of
the National Defense Act for Fiscal Year 2021. The CTA requires the
disclosure of the beneficial ownership information (otherwise known as
“BOI”) of certain entities from people who own or control a company.
It is anticipated that 32.6 million businesses will be required to comply
with this reporting requirement. The intent of the BOI reporting requirement
is to help US law enforcement combat money laundering, the financing of
terrorism and other illicit activity.
The CTA is not a part of the tax code. Instead, it is a part of the Bank
Secrecy Act, a set of federal laws that require record-keeping and report
filing on certain types of financial transactions. Under the CTA, BOI
reports will not be filed with the IRS, but with the Financial Crimes
Enforcement Network (FinCEN), another agency of the Department of Treasury.
Below is some preliminary information for you to consider as you approach
the implementation period for this new reporting requirement.
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 that are 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 that is formed under the law of a foreign country
and registered to do business in any 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. Included in the exemptions list are
publicly traded companies, banks and credit unions, securities
brokers/dealers, public accounting firms, tax-exempt entities and certain
inactive entities, among others. Please note 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 important decisions of the
reporting company. 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 the terms "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
- New entities (created/registered after 12/31/2024) — must file within
30 days
- Existing entities (created/registered before 1/1/24) — must file by
1/1/25
- Reporting companies that have changes to previously reported
information or discover inaccuracies in previously filed reports — must
file within 30 days
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, and 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, and 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 $500 per day and up to $10,000
with up to two years of jail time. For more information about the CTA, visit
www.fincen.gov/boi.
This information is meant to be general-only and should not be applied to
your specific facts and circumstances without consultation with competent
legal counsel and/or other retained professional adviser.We advise you to
seek the advice of legal counsel with regard to the obligations under the
Corporate Transparency Act.
Please contact our office at 559-449-7688 to discuss your business
situation.
