As of January 1, 2024, most United States businesses must now report information about the owners and controllers of the company to the Financial Crimes Enforcement Network (“FinCEN”). This article provides a general overview of the Corporate Transparency Act ("CTA") requirements and the potential actions required before the end of 2024 to avoid significant civil and criminal penalties under the CTA.
What is the CTA?
The stated purpose of the CTA is to combat illicit activity including tax fraud, money laundering, and financing for terrorism. The CTA requires certain entities, referred to as “reporting companies,” to report information about the companies themselves, their “beneficial owners,” and the person(s) who signed the entity formation documents. With the enactment of the CTA, the United States joined other nations that have already adopted similar reporting requirements.
Who must report?
For purposes of the CTA, a reporting company is any corporation, limited liability company, or similar entity that was created by filing documents with a secretary of state or similar office. In addition, statutory trusts, business trusts, and foundations which were created by filing with a secretary of state or similar office would likely be deemed a reporting company. All reporting companies in the chain of ownership or control must individually comply with the reporting requirements.
Are there any exceptions?
There are very few exceptions to the reporting requirements of the CTA. However, many nonprofits, publicly traded companies, and large companies with more than 20 employees and gross receipts in excess of $5 million are exempt. Unfortunately, most small businesses do not qualify for these exceptions.
Who are “beneficial owners”?
A beneficial owner includes any individual who (i) directly or indirectly, exercises substantial control over the reporting company or (ii) owns or controls at least 25% of the ownership interests of the reporting company. The CTA broadly interprets “substantial control” to include any individual who is a senior officer, an important decision-maker, has appointment or removal authority, or maintains significant control over the entity. An ownership interest, as referred to in the CTA, includes equity, stock, voting rights, capital or profit interests, convertible instruments, options to buy or sell any of the foregoing, or any other mechanism used to establish ownership.
What information must be reported?
Each reporting company must file its initial report online with FinCEN using the form available on its website. The initial report must include the full legal name and any trade or “doing business as name” for the reporting company, a complete address of the reporting company, including street address of the principal place of business (no P.O. Box or the address of the attorney who formed the entity), the state of formation, and the Taxpayer Identification Number for the reporting company. In addition, the report must include the following information for each beneficial owner and each company applicant:
full legal name;
date of birth;
complete current residential address;
passport number from a non-expired passport or driver’s license number from a government-issued driver’s license; and
a copy the identifying document used.
What are the penalties?
The penalties for willfully failing to report complete or updated beneficial ownership information to FinCEN or willfully providing or attempting to provide false or fraudulent beneficial ownership information are substantial. There are civil and criminal penalties for violations of up to $500 (adjusted annually for inflation) for each day that the violation continues or has not been remedied, fines up to $10,000, and up to two years imprisonment.
What should you do now?
First, if you have business entities that were formed prior to January 1, 2024, you must file the required report by December 31, 2024. Second, if you formed any new entities in 2024, the report must be filed within 90 days of the formation. If you form any new entities after 2024, the report must be filed within 30 days of the formation. The information for filing the report can be found at https://fincen.gov/boi.
How can we assist you?
We will be happy to assist you with filing the FinCEN reports for your entities. We provide this service to all of our clients for whom we create a new business entity. Please contact our office if you need assistance.
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