CTA (Corporate Transparency Act)
The CTA was enacted by Congress on January 1, 2021, in an effort to combat financial crimes, money laundering, and corruption across all industries. The legislation mandates that privately held corporations, LLCs, partnerships, and other legal entities formed by filing with a Secretary of State must provide a Beneficial Ownership Information Report (BOI Report) to FinCEN (U.S. Department of Treasury bureau, Financial Crimes Enforcement Network) unless qualifying for an exemption. These efforts provide more transparency for the U.S. government to detect and prevent bad actors hiding behind corporate shell companies and other entity structures.
Exemptions
There are 23 types of entities that are exempt from CTA reporting requirements. These include, but are not limited to, financial institutions, government authorities, insurance companies, public traded companies, certain tax-exempt/non-profits, large operating companies, and inactive entities. However each of the entity types may have additional conditions to qualify for the exemption. Exempt companies do not need to report that they are exempt. Please review the qualifications with FinCEN’s Small Entity Compliance Guide and consult with legal and accounting professionals if further assistance is needed.
Non-Compliance Penalties
Willful non-compliance with the CTA can lead to significant penalties from $500 per day up to a maximum of $10,000. It is also possible to face criminal charges up to two years in prison. The non-compliance may include (1) failure to report or update beneficial ownership information timely or (2) providing false or fraudulent information.
Reporting Company
A “reporting company” is any organization established that has registered with a Secretary of State or a similar office. These may include domestic reporting company, such as a corporation, limited liability company (LLC), or similar businesses but does not include sole proprietorships. Foreign reporting companies are entities formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with the Secretary of State or any similar office. Each reporting company must provide the company’s legal name, trade or DBA name, company address, state jurisdiction, Federal EIN, and Secretary of State ID. Affiliated companies cannot file a single report on behalf of its group and instead need to file each report separately. Filing a state annual report or local business registration do not meet the requirements for the FinCEN’s CTA.
Beneficial Owner & Substantial Control
A beneficial owner of a reporting company is an individual who either (1) directly or indirectly exercises substantial control or (2) owns/controls at least 25% of the reporting company’s ownership interests. Substantial control may be determined by title, authority to appoint or remove officers and/or directors, important decision-making, or other forms of control provided by the compliance guide. Each beneficial owner will report their name, date of birth, residential address (P.O. boxes are not accepted), and tax identification number.
BOI (Beneficial Ownership Information) Report
The reporting company and beneficial owner information will be submitted through an online portal called BOSS (Beneficial Ownership Secure System). There is no fee to submit the information. The information provided to the government may be accessed by Federal, State, local, and Tribal officials, as well as foreign officials who submit a request through a U.S. Federal government agency.
Company Applicant (Preparer)
It is not required to use an attorney or a certified public accountant (CPA) to submit the report to FinCEN, however reporting companies that need help meeting their reporting obligations can consult with accounting and/or legal professionals. Anyone whom the reporting company authorizes to act on its behalf may include an employee, owner, or third-party service provider, may file a BOI report on the reporting company’s behalf. The primary responsible person may be required to provide his/her information as the company applicant.
Reporting Due Dates
Initial Report – For companies existing prior to January 1, 2024, the initial report must be filed by January 1, 2025. For new companies starting between January 1, 2024, and January 1, 2025, then it must be filed within 90 calendar days after receiving actual or public notice that its creation or registration is effective. Otherwise, the filing due is within 30 calendar days that its creation or registration is effective.
Update Report and Corrections – If there is any change to the beneficial ownership information, your company must file an updated report within 30 calendar days after the date of change. Corrections to reports should be completed within 30 days of becoming aware of the inaccuracy. There is no annual report requirement. The BOI must be e-filed online and will receive a confirmation success or failure with transcript.
Additional Information:
For further information, please see the FinCEN BOI website and Small Entity Compliance Guide.
If you have questions about the implications of the CTA and reporting obligations, please do not hesitate to contact us.
