Effective January 1, 2024, a significant number of businesses, including private companies, will be required to disclose beneficial ownership information (BOI) of certain entities from people who own or control a company under the Corporate Transparency Act (CTA).
Enacted as part of the National Defense Act for Fiscal Year 2021, the CTA’s disclosure requirements are designed to help U.S. law enforcement combat money laundering, the financing of terrorism, and other illicit activity.
Under the CTA, BOI reports will be filed with the Financial Crimes Enforcement Network (FinCEN), an agency of the Department of Treasury.
Reporting Requirements
Below is some preliminary information to consider as you approach the implementation period for this new reporting requirement. This information is meant to be general, is not legal or tax advice, and should not be applied to your specific facts and circumstances without consulting competent legal counsel or another professional adviser.
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 Native American tribe. Domestic entities that are not created by the filing of a document with a secretary of state or similar office may not be required to report under the CTA.
International companies required to report under the CTA include corporations, LLCs, or any similar entity 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 Filing Exemptions?
There are 23 categories of exemptions including publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities. These are not blanket exemptions and many government-regulated companies already disclose their BOI to a government authority.
In addition, certain “large operating entities” may be 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 $5 million on the prior year’s tax return.
- 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.
The CTA regulations define the terms “substantial control” and “ownership interest” further.
Deadlines to File
Deadlines are dependent on when an entity is registered or formed, or if there is a change to the beneficial owner’s information:
- Deadlines for new entities (created/registered after 12/31/23):
- As temporary relief to the new requirements, reporting companies created or registered in 2024 will have 90 calendar days from the date of their creation or initial registration to file.
- Entities created in 2025 and later will have a 30-day deadline.
- 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 Information Is Reported?
Companies must report the following information: the full name of the reporting company, any trade name or doing-business-as name, business address, state or tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN). Additionally, information is required on the beneficial owners of the entity and, for newly created entities, the company applicants of the entity.
Non-compliance Risks
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.
As you can see, this new law is complex and subject to interpretation. We suggest you contact your business entity’s legal counsel to determine how this reporting law may apply to your situation.
