Corporate Transparency Act: Beneficial Ownership Information E-Filing System Now Available to Accept Reports

Most small corporations and LLC’s will be required to report. The discussion below will provide background information and steps needed for your business to be in compliance with this new law.

CAUTION: 

Failure to comply penalties $500 per day and up to $10,000 and two years prison for willful failures.  

ALERT:

FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.

What is the Corporate Transparency Act?

The Corporate Transparency Act (“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 be filed with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.

What entities are required to comply with the CTA requirements?

All domestic and foreign entities that have filed formation or registration documents with a U.S. state (or Indian Tribe), unless they meet one of the 23 enumerated exemptions (see Item 1.2 from the FinCEN Small Entity Compliance Guide for a list of full exemptions)

Consequently, most small corporations and LLC’s will be required to file.

A very common exemption is the large operating entity exemption which requires ALL of the following to be met in order to be exempt from the reporting requirement:

  • Employ more than 20 people in the U.S.
  • Had gross domestic revenue (or sales) over $5 million on the prior year’s tax return
  • Has a physical office 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% of the ownership interests of a reporting company

What information do companies need to report?

  • Each company must report the information below
  • Full legal name of the reporting company
  • Business address
  • State of formation or Tribal jurisdiction
  • IRS Taxpayer ID number or SSN

In addition, each reporting company must report the following details on its beneficial owners:

  • Name
  • Birthdate
  • Address
  • Unique identifying number and issuing jurisdiction from an acceptable identification document (and image of such document)

New entities formed on or after Jan. 1, 2024 must also include information on its filing applicants.

When must companies file?

  • Existing entities (created/registered before Jan. 1, 2024) – must file by Jan. 1, 2025
  • New entities (created/registered after Dec. 31, 2023 and before January 1, 2025) must file within 90 days
  • New entities (created after December 31, 2024) must file within 30 days
  • Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports – must file within 30 days

What are the taxpayer penalties for noncompliance?

  • Civil penalties are up to $500 per day that a violation continues
  • Criminal penalties include a $10,000 fine and/or up to two years imprisonment

What are the next steps needed to ensure compliance?

  • In connection with the January 1, 2024 date when reporting through FinCEN is available, determine all entities that may be required to report under the CTA requirements (as mentioned above, this will typically include all corporate and LLC entities even if such entities are owned by another entity)
  • Determine who will be handling or assisting with the CTA reporting.

Some options are:

  • A designated person within your organization
  • Outside legal counsel
  • CT Corporation is a company that provides corporate compliance solutions. One of their service offerings includes a CTA management tool

How do companies file?

  • Companies will file their reports electronically through the FinCEN website which can be accessed by clicking the link https://www.fincen.gov/boi
  • Once connected to the site, select “File a report using the BOI E-Filing System”
  • Beneficial owners can also use the FinCEN website to “Create a FinCEN ID” which is a unique identifying number issued to an individual and can be provided to the reporting company in lieu of required information about that individual.
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