- The Corporate Transparency Act went into effect on January 1, 2024.
- The Act was enacted to prevent money laundering, fraud, and other illicit activities.
- Entities formed before January 1, 2024, are required to file the report by January 1, 2025.
- Entities formed from January 1, 2024, to December 31, 2024, are required to filed the report within 90 days of formation.
- Entities formed after January 1, 2025, are required to filed the report within 30 days of formation.
- Willful failure to comply with the CTA or providing false information can result in severe civil and criminal penalties.
Does Your Company Have to Comply With The Corporate Transparency Act?
By Toni Y. Long
What Is The Corporate Transparency Act?
The U.S. Corporate Transparency Act (“CTA”) was enacted by Congress in January 2021 to prevent money laundering, fraud and other illicit activities by ensuring that the identities of owners of corporate entities are known and not concealed through complex ownership structures. Starting on January 1, 2024, the CTA requires domestic and foreign companies registered in the United States to disclose the names of individuals who own or control the entity. (See the chart below to determine when the initial BOI Report is due.) Companies that are required to comply with the CTA (“reporting companies”) must submit a report to the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) containing personal information about the reporting company’s “beneficial owners.”
What Are The Requirements of The CTA?
Reporting companies must file a Beneficial Ownership Information Report (“BOI Report”) with FinCEN disclosing information about the company and about the owners and management of the company. Business owners are strongly encouraged to consult FinCEN’s regulations and guidance to determine who must be identified in a BOI Report as an “owner” and as a member of management exercising “substantial control” over the reporting company.
What Are Reporting Companies?
Only reporting companies are subject to the CTA’s reporting requirements. A reporting company includes: (1) domestic reporting companies, i.e., any corporation, LLC, limited partnership, or similar entity created by filing a document with any US state, territory, or Indian tribe, and (2) foreign reporting companies, i.e., any non-US entity that registers to do business with any US state, territory, or Indian tribe. Trusts (other than trusts created by a filing, such as statutory or business trusts) are themselves not reporting companies.
Who Is A Beneficial Owner?
A beneficial owner is an individual who, directly or indirectly, exercises substantial control over the company or who owns not less than 25% of the ownership interests of the entity. There are a few exceptions, such as the minor children of the beneficial owner or a person who is solely an employee of the reporting company. Beneficial owners must provide their personal information to FinCEN which will remain in its database for up to five years after the company is dissolved or terminated.
When Must A Company File The BOI Report?
Reporting companies must file their initial reports to FinCEN by the following deadlines: Reporting companies formed before January 1, 2024, will have until January 1, 2025, to file their initial report with FinCEN. Reporting companies formed on or after January 1, 2024, and before January 1, 2025, must file their initial report to within 90 days of the company’s formation. Reporting companies formed on or after January 1, 2025, must file their initial report within 30 days of the company’s formation.
Beneficial ownership information reporting is not an annual requirement. A BOI Report only needs to be submitted once, unless the filer needs to update or correct information. In addition, reporting companies must update their BOI Report information within 30 days of any changes to the required information about the company or its beneficial owners or to correct any misinformation submitted to FinCEN.
|Date of Company’s Formation / Triggering Event
|When Initial BOI Report is Due
|Before January 1, 2024
|January 1, 2025
|January 1, 2024, to December 31, 2024
|Due within 90 days after company’s formation
|January 1, 2025, and thereafter
|Due within 30 days after company’s formation
|To update company or beneficial owner information / to correct misinformation
|Within 30 days of such change or discovery of the misinformation
What Information Must Be Included About An Owner?
Reporting companies must provide four pieces of information about each beneficial owner:
- date of birth;
- address; and
- the identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.
The reporting company must also submit certain information about itself, such as its name(s) and address. In addition, reporting companies created on or after January 1, 2024, are required to submit information about the individuals who formed the company (“company applicants”).
Which Entities Are Exempt From Filing Under The TCA?
There are 23 exemptions under the CTA. Most of the exemptions apply to large entities that are highly regulated and already subject to similar reporting requirements, but there are also exemptions for certain tax-exempt entities and large operating companies that are not necessarily subject to regulation.
Some exempt businesses include but are not limited to:
- Sole proprietors.
- Large businesses, e.g., with more than 20 full-time employees AND $5 million in receipts on their prior-year tax return.
- Certain businesses already heavily regulated by the government, such as banks and insurance companies.
- Rental properties held in an LLC.
Is The Information Provided to FinCEN Publicly Available?
No. The CTA authorizes FinCEN to disclose beneficial ownership information in certain instances to six types of requesters:
- Federal agencies engaged in national security, intelligence, or law enforcement activity. “Law enforcement activity” includes both criminal and civil investigations and actions, such as actions to impose civil penalties, civil forfeiture actions, and civil enforcement through administrative proceedings.
- State, local, and Tribal law enforcement agencies if “a court of competent jurisdiction” has authorized the law enforcement agency to seek the information in a criminal or civil investigation.
- Foreign requesters on behalf of a law enforcement agency, prosecutor, or judge of another country, or on behalf of a foreign central authority or foreign competent authority.
- Financial institutions using BOI to conduct legally required customer due diligence, provided the financial institution requesting the BOI has the relevant reporting company’s consent for such disclosure.
- Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing financial institutions for compliance with legally required customer due diligence requirements.
- U.S. Department of Treasury officers or employees (1) whose official duties require BOI inspection or disclosure, or (2) for tax administration.
What Are the Penalties for Failing to Comply With The CTA?
Willful failure to comply with reporting obligations under the CTA can result in steep financial penalties. The CTA provides for civil penalties ($500/day) and criminal penalties (up to two years imprisonment and up to $10,000 fine) for willful failure to comply. There are also penalties for willfully providing false or fraudulent information in a BOI Report.
How Do I Comply With The CTA?
Owners and officers of entities formed by a filing or registration with a state agency should first determine if the company qualifies for an exemption. If not, then the company should collect the information needed to file a BOI Report. The Long Law Group is available to advise clients about their eligibility for exemptions and to assist in complying with the CTA.
FinCEN’s website has helpful guides and other information about compliance with the CTA.
Beneficial Ownership Information Reporting FAQs – Click HERE for more information.
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We know this is a lot of new information to digest. If you have any questions relating to this topic or any other issues, please do not hesitate to contact either Toni Y. Long or Randy A. Lopez directly.
DISCLAIMER: The information contained above is solely provided for informational purposes and does not constitute legal advice. All readers should consult with legal counsel for additional and/or current information, and before acting on any of the information presented in this post.