YOUR CORPORATE TRANSPARENCY ACT RESOURCES
Last update August 21, 2023
A new federal law, the Corporate Transparency Act, will impact almost all LLCs, corporations, limited partnerships, and other closely held entities. There are a few exceptions. The law becomes effective January 1, 2024. Exempted from this requirement are entities such as the following. These are generally entities that are already subject to significant reporting requirements:
- An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934.
- Bank, credit union or depository institution.
- Money transmitting business registered with FinCEN.
- Broker or dealer in securities.
- Investment company or investment adviser.
- Insurance company.
- A futures commission merchant.
- Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act.
- Public utility.
- Pooled investment vehicle.
- Tax exempt entity that is described in section 501(c) of the Internal Revenue Code (“Code”).
- A political organization as defined in section 527(e)(1) of the Code.
- A trust described in paragraph (1) or (2) of section 4947(a) of the Code.
The purpose of the CTA is to create a national database of companies in the U.S. that identifies the human beings behind the companies as owners or control persons. The law is part of an increasing effort to combat money-laundering, terrorism, tax evasion, and other financial crimes. Congress intended to try to help law enforcement by creating this national database of organizations that might be involved in such activities but it will apply even if the entity is not so involved.
The Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the United Stated Treasury Department is not part of the IRS, will be in charge of creating and maintaining the database, which as of now will not be of public record but available to a variety of agencies and possibly others in the future. All “reporting companies” will be required to file reports with FinCEN that provide certain information regarding the companies and “beneficial owners” of the companies – the humans behind the companies.
This new law will affect virtually all small family businesses, including even LLCs and other entities designed only to hold real estate. Even if an entity has only one owner and that entity is ignored for federal income tax purposes (such as a single-member LLC), that entity still will have to file reports with FinCEN.
The rule goes into effect January 1, 2024. For entities that already exist by that date, their initial reports are due by January 1, 2025. For entities created on or after that date, their initial reports are due within 30 days from the creation of the entity. As of now, there are no extensions available. There are stiff civil and criminal penalties for failing to file – this is not something that can be missed.
If you have any interest in a closely held entity, such as an LLC, corporation, or limited partnership, or if you exert significant control over any such entity (which might include any officer, director, manager, chief financial officer or investment trustee) then you may be subject to these requirements. If so then you may be responsible for filing reports with FinCEN.
Given the difficulties of identifying all the entities and persons that will have to report, we suggest that you begin now to assemble a list of every privately held entity that you own an interest in or exert control over. You should try to obtain a copy of the certificate that was filed with the state where the entity was formed as well. Because we may have formed entities years or decades ago, we may not have accessible records to identify all such entities. Also, you may have had other advisers form entities of which we are not aware. You may have even formed entities on your own. In any case, we will not undertake to find these entities for you or to prepare the forms required to report to FinCEN unless you separately engage us to do so. If you do wish to engage us to help with this new requirement, we will then begin the process of determining if it is a reporting entity and whether you or someone else will assume responsibility for the reporting. We believe that assembling such a comprehensive list may be prudent to avoid missing any entities, particularly considering the penalties that may be imposed.
What is the Corporate Transparency Act?
The Corporate Transparency Act was enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA). The purpose of the act is to require reporting companies to file beneficial ownership information (BOI) report with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in an effort to combat illicit activity.
What is a reporting company?
A domestic reporting company is a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
A foreign reporting company is a corporation, limited liability company, or other entity formed under the law of a foreign country, and is registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.
What is a beneficial ownership information (BOI) report?
The BOI report is the report that is required to be filed with FinCEN. BOI reports contain identifying information about the reporting company and identifying information about individuals who directly or indirectly own or control a company. For reporting companies created or registered to do business after January 1, 204, BOI reports will also contain the identifying information about the company applicants.
Who is a beneficial owner?
A beneficial owner is any individual who (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
Who is a company applicant?
A reporting company can name up to two individuals as company applicants. A company applicant is the individual who directly files the document that creates, or first registers, the reporting company; and/or the individual that is primarily responsible for directing or controlling the filing of the relevant document.
What information will a reporting company have to report about itself?
A reporting company will have to report its legal name, any trade names, the current street address of its principal place of business, its jurisdiction of formation or registration, and its taxpayer identification number.
When does this goes into effect?
The effective date of the Corporate Transparency Act’ beneficial ownership interest reporting requirements is January 1, 2024.
Am I exempt?
There are 23 types of entities that are exempt from the beneficial ownership information reporting requirements. The most notable exemptions are for “large operating companies” and certain tax-exempt entities. A “large operating company” is an entity that (1) employs more than 20 full-time employees in the United States, (2) has an operating presence at a physical office within the United States, and (3) has a filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts. The full list of 23 exempt entities can be found here.
What information will a reporting company have to report about its beneficial owners and company applicants?
The individual’s name, date of birth, and address, a unique identifying number from an acceptable identification document, and the name of the state or jurisdiction that issued the identification document.
When is it due?
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial beneficial ownership information form.
A reporting company created or registered to do business after January 1, 2024, has 30 calendar days to file their Initial Beneficial Ownership Information Form.
What is a FinCEN identifier?
In lieu of providing the information required of individual beneficial owners and company applicants to reporting companies, individuals can apply for a FinCEN identifier. Individuals must submit an application to FinCEN directly for a FinCEN identifier. They will be required to provide the same information required by a BOI report. The individual would then receive a unique identifier number that they can provide to any reporting company that requests their information.
Where do I start?
The first thing a business owner should do is determine if their business is considered a reporting company. If the business is considered a reporting company, the business owner should check their corporate records and determine if they have accurate ownership records to determine the current ownership. Business owners should then begin to develop an internal process to collect the information required when reports are due.
I’ve determined I am a reporting company, what is next?
The next step for business owners is to determine the reporting company’s current ownership and leadership. Business owners can then begin to determine whose information may be required to be reported and if an internal process needs to be developed for compliance with the reporting requirements.
Who is responsible?
The reporting company is responsible for identifying and reporting its beneficial owners and applicants.
Are there consequences for noncompliance?
If an individual willfully provides, or attempts to provide, false or fraudulent information or if an individual willfully fails to report, complete, or update beneficial ownership information, there may be civil and or criminal penalties. A person may be liable for a civil penalty of not more than $500 for each day the violation continues or has not been remedied; and in addition, if criminal penalties are also pursued may be fined not more than $10,000, imprisoned for not more than 2 years, or both.
How often do I need to file?
At this time, all reporting companies will be required to submit an initial BOI report. However, reporting companies are required to update their BOI report within 30 calendar days if there are any changes such as changes in ownership, change of address for a beneficial owner or company applicant, new beneficial owners that meet the requirements, etc.. Additionally, reporting companies will have 30 calendar days to make any corrections after they become aware of, or have reason to know of, any inaccuracy in a prior report.
Is this reoccurring?
The initial BOI report is a one-time requirement. However, reporting companies will have to remain in compliance and are required to update or correct their reports as new developments may arise.
Will I be required to update the BOI report if there are any changes?
Yes. Reporting companies will have 30 days to report any changes to reported information.
Where can I find the application?
The application is not currently available. Once the application becomes available, a link will be attached here.
Who will have access to my information?
The Corporate Transparency Act authorizes FinCEN to disclose beneficial ownership information in certain circumstances to six types of requesters: (1) U.S. federal agencies engaged in national security, intelligence, and law enforcement activities; (2) State, local, and Tribal law enforcement agencies with court authorization; (3) the U.S. Department of Treasury; (4) financial institutions using beneficial ownership information to conduct legally required customer due diligence with customer’s consent; (5) Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; and (6) foreign law enforcement agencies and certain other foreign authorities who submit qualifying requests for the information through a U.S. federal agency.
What is the purpose of this?
The purpose of the Corporate Transparency Act is to prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, and protect U.S. economic prosperity.
Are there any fees?
There will be no fee to file BOI reports. However, if OLG is engaged for assistance with compliance with the CTA, the firm will bill you on an hourly basis. Final costs would be dependent on the work necessary to complete the process.
How long will it take to complete the initial BOI report?
FinCEN estimates the average burden of reporting BOI as short as 90 minutes for reporting companies with simple beneficial ownership structures to as much as 650 minutes for reporting companies with complex beneficial ownership structures.
What if my business is inactive?
The CTA exempts inactive entities from the BOI reporting requirements. An “inactive entity” is one that (1) was in existence on or before January 1, 2020, (2) is not engaged in active business, (3) is not owned by a foreign person, whether directly or indirectly, wholly or partially, (4) has not experienced a change in ownership in the preceding 12-month period, (5) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period, and (6) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
Where do I find more information?
More information regarding the Corporate Transparency Act can be found here.
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