by Nick Hill
Effective January 1, 2024, a substantial number of business owners must file a new report as part of the federal Corporate Transparency Act (CTA). The goal of the CTA is to enhance the U.S. government’s ability to combat money laundering, terrorist financing, and other illicit activities by providing law enforcement and regulatory authorities with better access to information about the true ownership of companies. Failure to comply with this act may result in severe civil and criminal penalties, including hefty fines and possible time behind bars.
Under the CTA, reporting companies must file a Beneficial Ownership Information (BOI) report with Financial Crimes Enforcement Network (FinCEN). The information provided in the report will include the beneficial owner names, addresses, dates of birth, and identification numbers. A beneficial owner is an individual who, directly or indirectly, either 1) exercises substantial control over the reporting company or 2) owns or controls at least twenty-five percent (25%) of its ownership interests.
A reporting company created or registered before January 1, 2024 must file a report by January 1, 2025. A reporting company created or registered on or after January 1, 2024 and before January 1, 2025 must file its initial BOA report within ninety (90) days of the date on which the company receives actual or public notice that its creation has become effective. A reporting company created or registered on or after January 1, 2025 must file its initial BOI report within thirty (30) calendar days of the effective creation date.
Entities that are already subject to close federal or state regulation and thus already must disclose their beneficial ownership information to the government are exempt from filing. These entities include publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies. Large operating companies are ones that 1) employ more than twenty (20) full-time employees in the U.S., 2) operate at a physical office in the U.S., and 3) have filed a federal tax return for the previous year reporting gross receipts or sales of more than $5 million. Most small corporations and LLCs likely will not qualify for an exemption. A comprehensive list of the companies that are exempt from the reporting requirement can be found on the FinCEN website: https://www.fincen.gov/boi-faqs#C_2
The beneficial owner must complete this federal filing and submit it electronically through a filing system on FinCEN’s website: https://www.fincen.gov/boi. The CTA mandates only the submission of an initial BOI report and, when necessary, an updated or corrected report. Notably, there is no state filing involved. If you have any questions, please contact your tax advisor.