The Corporate Transparency Act (CTA) was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA is not part of the tax code. Instead, the CTA is part of the Bank Secrecy Act, a set of federal laws with the intent to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. The CTA requires the disclosure of “Beneficial Ownership Information” (known as “BOI”) for certain business entities and their owners or persons with control over the business. It is anticipated that over 32 million businesses will be required to comply with this new reporting requirement related to corporate governance.
All U.S. domestic and foreign entities, including corporations and limited liability companies (LLCs) that have filed formation or registration documents with any U.S. state, are required to report BOI, unless specifically exempted. Specific exemptions apply to various business types that are already heavily regulated by the government. Those exemptions include publicly traded companies, banks and credit unions, securities brokers and dealers, public accounting firms, and tax-exempt entities, among others. Also exempt are “large operating entities” that employ more than 20 people in the U.S., have reported gross revenue of over $5 million on the prior year’s tax return and are physically present in the U.S.
The BOI filing will be made directly and electronically with the U.S. Department of the Treasury Financial Crimes Enforcement Network (FINCEN). New entities created or registered after December 31, 2023 must file within 90 days of creation or registration in 2024 only. Existing entities created or registered before January 1, 2024 must file by January 1, 2025.
The information to be reported includes the full legal name of the reporting company and any trade or DBA names, business address, state of formation or registration, and taxpayer identification number. In addition, each reporting company must report for its beneficial owners their name, birthday and address, and submit an acceptable form of identification such as a driver’s license or passport.
A beneficial owner is defined as any individual who owns at least 25 percent of the reporting company or exercises substantial control over the reporting company (for example, a non-owner President or CEO).
Penalties for willful failure to comply with the BOI reporting requirement can result in criminal and civil penalties of $500 per day up to $10,000, with up to two years of jail time.
For more details, please visit FINCEN’s website at www.fincen.gov/boi. As always, planning ahead can help you comply with and understand your corporate governance reporting obligations.
