The Corporate Transparency Act (CTA) was signed into law to fight crimes commonly associated with illegal business activities such as terrorist financing and money laundering. If your business can be defined as a “reporting company” under the CTA, you may need to comply with new beneficial ownership information (BOI) reporting rules that take effect on January 1, 2024. Failure to do so can result in substantial penalties and even criminal prosecution.
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. Given this is not part of the tax code and is under Title 31 of the US Code, filings will need to be made either directly by the entities or in conjunction with their legal team.
Who’s who?
A reporting company includes any corporation, limited liability company or other legal entity created through documents filed with the appropriate state authorities. While this could certainly include many operating businesses, it also could include single member LLC’s reporting on Schedule C or E or even an LLC just holding a personal residence. A reporting company may also be any private entity formed in a foreign country that’s properly registered to do business in a U.S. state.
Reporting companies must provide information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. A beneficial owner is someone who, directly or indirectly, exercises substantial control over a reporting company, or who owns or controls at least 25% of its interests. Indirect control is often exhibited by a senior officer or person with authority over senior officers.
The CTA does exempt a wide range of entities from the BOI reporting rules — including government units, nonprofit organizations and insurers. Notably, an exemption was created for “large operating companies” that:
Employ more than 20 employees on a full-time basis,
Have more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources), and
Physically operate in the United States.
However, many of these businesses need to comply with other reporting requirements.
What info must be provided?
The BOI reporting requirements are extensive. Reporting companies must file a report with FinCEN that includes the entity’s legal name (or any trade or doing-business-as name), address, jurisdiction where the entity was formed and Taxpayer Identification Number.
Reporting companies must also submit the name, address, date of birth and “unique identifying number information” of each beneficial owner. A unique identifying number may be a U.S. passport or state driver’s license number. An image of the document containing the identifying number must be included in the filing.
In addition, the CTA requires reporting companies to provide identifying information about their “company applicants.” A company applicant is defined as someone who’s responsible for:
Filing the documents that created the entity (for a foreign entity, this is the person who directly files the document that first registers the foreign reporting company to conduct business in a U.S. state), or
Directing or controlling the filing of the relevant formation or registration document by another individual.
Note: This rule often encompasses legal representatives acting in a business capacity.
When to file?
Reporting companies have either 30 days or one year from the effective date of January 1, 2024, to comply with the CTA. Reporting companies created or registered before the effective date have one year to file their initial reports with FinCEN. Those created or registered on or after January 1, 2024, will have 90 days upon receipt of their creation or registration documents to file initial reports.
After initially filing, reporting companies have 30 days to file an updated report reflecting any changes to previously reported BOI. In addition, reporting companies must correct inaccurate BOI in previously filed reports within 30 days after the date they become aware of the error.
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement are severe. Willful non-compliance can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time.
Who can help?
With the effective date closing in quickly, now’s the time to determine whether your business is a nonexempt reporting company that must comply with the BOI reporting rules. As noted earlier, this is a legal filing not a tax filing, so we would recommend contacting your legal team for assistance with questions and/or filings.