TheMoneyGeek Unplugged

Starting January 1, 2024, many businesses and non-business entities must comply with the Corporate Transparency Act (CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires disclosing the beneficial ownership information (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 U.S. law enforcement combat money laundering and the financing of terrorism and other illicit activity.

The CTA is not part of the tax code. Instead, it is 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 the Treasury.

Below is some preliminary information for you to consider as you approach the implementation period for this new reporting requirement. This information is meant to be general in nature. It should not be applied to your specific facts and circumstances without consultation with competent legal counsel or other retained professional adviser.

What entities are required to comply with the CTA’s BOI reporting requirement?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs), or any similar entity created by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe. This may even include seemingly innocuous entities like the homeowner’s associations (HOA) and HOA board members.

Domestic entities not created by filing a document with a secretary of state or similar office are not required to report under the CTA.

Foreign 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 similar office.

Are there any exemptions from the filing requirements?

There are 23 categories of exemptions. Among the exemptions are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities. Please note that these are not blanket exemptions, and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

1. Employ more than 20 people in the U.S.;
2. Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
3. 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
  
  

An individual has substantial control of a reporting company if they direct, determine, or exercise substantial influence over its important decisions. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

The detailed CTA regulations define “substantial control” and “ownership interest” further.

When must companies file?

Different filing timeframes apply depending on when an entity is registered/formed or if the beneficial owner’s information changes.

• New entities (created/registered in 2024) — must file within 90 days of creation/registration
• New entities (created/registered after 12/31/2024) — must file within 30 days
• 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

Entities dissolved or terminated during 2024 may still be obligated to file a BOI.

To date, FinCEN has issued five notices extending the filing deadlines for certain reporting companies to submit BOI reports in response to Hurricanes Milton, Helene, Debby, Beryl, and Francine.

What sort of information is required to be reported?

Companies must report the following information:

1. The full name of the reporting company
2. Any trade name or doing business as (DBA) name
3. Business address, state or Tribal jurisdiction of formation
4. IRS taxpayer identification number (TIN).

Additionally, information on the entity’s beneficial owners and, for newly created entities, the company applicants is required. This information includes the name, birth date, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

What is the Cost of Filing and Risk of Non-compliance

There is no fee for filing the BOI report, which can only be filed online.

Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $591 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit Beneficial Ownership Information.

Beware of BOI Fraudulent Scams

FinCEN has learned of fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA.

These fraudulent scams may include:

• Correspondence referencing a “Form 4022” or “Form 5102” is fraudulent. FinCEN does not have a “Form 4022” or a “Form 5102.” Do not send BOI to anyone by completing these forms.
• Correspondence or other documents referencing a “US Business Regulations Dept.” This correspondence is fraudulent; there is no government entity by this name.

Please be on the lookout for anything that may indicate that the correspondence you receive is fraudulent. For example, be cautious of any of the following:

• Correspondence requesting payment. There is NO fee to file BOI directly with FinCEN. FinCEN does NOT send correspondence requesting payment to file BOI. Do not send money in response to any mailing regarding filing your beneficial ownership information report that claims to be from FinCEN or another government agency.
• Correspondence that asks the recipient to click on a suspicious URL or to scan a suspicious QR code. Those e-mails or letters could be fraudulent. Do not click suspicious links or attachments or scan any suspicious QR codes.
• Correspondence regarding penalties. FinCEN does NOT send initial correspondence regarding CTA penalties via e-mail or phone. Do not submit payments via phone, mail, or websites, as requests/directions are fraudulent.

Use caution when you receive correspondence from an unknown party. Verify the sender. Never give anyone personal information, including beneficial ownership, unless you know and trust the other party.

For more information, FinCEN has prepared Frequently Asked Questions (FAQs) in response to inquiries about the Beneficial Ownership Information Reporting Rule and Beneficial Ownership Information Access and Safeguards Rule.