Corporate Transparency Act (CTA)
Reporting Requirements of CTA for Business Owners
Reporting Requirements of The Corporate Transparency Act
As of 2024, you must submit an annual report about your LLC or corporation to the Financial Crimes Enforcement Network (FinCEN). The Corporate Transparency Act (CTA) requires millions of businesses to report information about who’s benefiting from ownership of the company.
The purpose of this new requirement is to discourage the use of limited liability companies (LLCs) or corporations for disguising or moving illicit funds. Many people see the United States as a haven for tax evasion and money laundering, and unfortunately, as the government seeks to crack down on these practices, it has also created another bureaucratic burden for legitimate small business owners.
Willful violation of the reporting requirements can lead to civil penalties of $500 for every day of violation as well as criminal penalties of up to a $10,000 fine and two years imprisonment. To help you prepare for this new requirement, this post explains who must report beneficial ownership information, when they must report, and what information they must provide.
Which Companies Need to File a Beneficial Owner Report?
The overwhelming majority of all business entities in existence will need to file a beneficial ownership information (BOI) report. The CTA says that two types of companies are required to file BOI reports with FinCEN—domestic reporting companies and foreign reporting companies. this includes corporations, limited liability companies, and similar entities created through a filing with the secretary of state under state law or formed under foreign laws but registered to do business in the United States.
Approximately 23 types of entities are exempt from the reporting rules, and the exemptions fall into the following six categories:
- Companies in highly regulated environments
- Certain registered or “large” investment companies
- Tax-exempt entities and their assisting entities
- Large operating companies that have:
- 20 plus full-time employees
- Physical presence in the United States, and
- More than $5M in gross receipts/sales
- Subsidiaries of certain exempt entities
- Inactive entities
Reporting Requirements Under the CTA
On formation or registration, a reporting company is required to submit a report to FinCEN identifying the reporting company’s
- full legal name, including trade names and d/b/a names;
- business street address;
- state of formation; and
- taxpayer identification number, including an employer identification number.
The report must also include personal information for each “beneficial owner” of the reporting company. This information includes the following for each individual:
- Full legal name
- Date of birth
- Current residential address
- A unique identifying number from an acceptable identification document (i.e., a driver’s license, passport, or other government-issued identification document)
- An image of the identification document
For entities formed after January 1, 2024, the report must also include the above personal information for the “applicant” who formed or registered the company. Entities formed before January 1, 2024, are not required to provide applicant information when submitting their report.
What Is a Beneficial Owner?
A beneficial owner is any individual who, directly or indirectly, either (1) exercises substantial control over the reporting company or (2) owns or controls 25% or more of the ownership interests of the reporting company.
What Is an Applicant?
An applicant is any individual who (1) files an application to form an entity under the laws of a U.S. state or (2) registers or files an application that first registers a foreign reporting company to do business in the United States. An applicant also includes any individual who is primarily responsible for directing or controlling the filing of such documents by another person.
Consequences for Noncompliance
The CTA provides that it is unlawful for any individual or reporting company to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information or to willfully fail to report complete or updated beneficial ownership information. Any person who engages in such unlawful conduct is subject to civil penalties of up to $500 for each day that the violation continues and criminal penalties consisting of a fine of not more than $10,000 and/or imprisonment for not more than two years.
Effective Date of the BOI Reporting Requirement
The Final Rule’s effective date is January 1, 2024.
Reporting companies created or registered on or after January 1, 2024, have 30 days after receiving notice of their formation or registration to file their initial report. However, for the 2024 calendar year, companies created or registered on or after January 1, 2024, have up to 90 days to to their initial report.
In addition, companies created before January 1, 2024, have an extended filing deadline for their initial report. Their initial reports are due January 1, 2025.
What If the Information on Your Report Changes?
The CTA requires businesses to maintain accurate reports. If you have changes in beneficial owners, personal information, or exempt status, you must file an update within 30 days.
Who Can Access the Reports?
The rules surrounding the CTA are complex, and FinCEN anticipates additional rulemaking to establish rules for who may access beneficial ownership information reported under the CTA, for what purposes, and what safeguards will be required to maintain the security of reported information.
Word of Caution for Lawyers
Finally a word of caution. The new reporting requirements also change things for lawyers because lawyers regularly prepare, sometimes sign as the organizer, and often file LLC articles of organization with a state.
Lawyers or their firms may want to rethink their role in this process since they risk being the company applicant (defined under FinCEN’s final rule as any individual who directs or controls the filing of the formation document) and thus be legally responsible for preparing and filing the CTR beneficial ownership report. 31 CFR Part 1010.
Some lawyers may choose to inform clients that the clients need to prepare, sign, and file their own articles of organization, as well as prepare and file their own CTA beneficial ownership forms. However, many lawyers will continue to prepare and file articles of organization for new LLCs (but probably not sign the articles as “organizer,” for whatever that might be worth), since clients will expect lawyers to take care of such matters.
Lawyers and their law firms should consider that doing so will make them a company applicant and require them to prepare and file—correctly—the CTA beneficial ownership form.
Get Help Meeting FinCen Reporting Requirements
We can help you figure out the CTA reporting requirements and understand what you need to do to stay in compliance. We help clients with a broad range of personal and business tax problems. To get help now, contact us at The W Tax Group.
