The Corporate Transparency Act is here! Business owners, you must comply by the end of 2024 or face serious penalties.
Every small corporation, LLC, and similar business must submit a Beneficial Ownership Information Report (BOIR) to the Financial Crime Enforcement Network (FinCEN) of the Treasury Department. Do not assume your business is exempt! About 33 million businesses are expected to file in 2024.
Possible criminal penalties for failure to report as required include up to two years in prison and a fine of up to $10,000. The civil penalty is $500 per day that the business is non-compliant. Uncooperative individuals who refuse to provide the information needed to comply with the CTA could cause serious issues for others associated with the business. Although the business itself is responsible for reporting, every person involved and every advisor for a business could potentially be accused of being a co-conspirator or an aider and abettor for those entities that do not comply or that inaccurately comply.
Any business formed via filing with a state entity is a “Reporting Company” that must report the required information. This includes corporations and LLCs. Twenty-three types of entities are exempt from the reporting requirements. These are mostly larger businesses that already have other forms of reporting requirements. Note that the exemption for inactive entities is very limited. Your business may not qualify for this exemption simply because you haven’t done anything with it lately.
Businesses formed or registered before 2024 must report by January 1, 2025. Businesses created or registered during 2024 must report within 90 calendar days of formation. Businesses formed after 2024 must report within 30 days after formation. This is not a one-time reporting requirement. A company will have 30 days to report any changes to the already-reported information, starting from when that change occurs. Ongoing compliance could be an issue for businesses with multiple beneficial owners. The report must be updated, for example, if any owner changes residential addresses.
A reporting company must provide: its legal name and any trade name or DBA; its US street address; the jurisdiction in which it was formed or first registered; its Taxpayer ID. For each of the company’s beneficial owners, the company must provide the individual’s: legal name; date of birth; residential address; and an identifying number from a driver’s license, passport, or other approved document, along with an image of the document. That’s right. They want a copy of your driver’s license or passport. Any business formed after January 1, 2024 must provide the same information for each Company Applicant. The Company Applicant is the person who files the business’ formation documents with the state.
Determining a business’ beneficial owners can be tricky, especially for businesses owned or controlled by other businesses or trusts. Beneficial owners have either substantial control or ownership of the business. FinCEN defines substantial control broadly. It includes senior officers, those with the ability to appoint or remove senior officers, those who have substantial influence over important decisions, and—the catch all—those who have any other form of substantial control over the company. An individual who owns 25 percent or more of the business is also a beneficial owner. Both ownership and control over the business can be direct or indirect, for example, through other businesses. Beneficial owners cannot be businesses; they must be individuals. FinCEN wants to know the individuals behind each and every business.
FinCEN requires the reports to be filed online. The simplest means of filing online is through FinCEN’s BOI E-Filing System, which went live as scheduled on January 1, 2024. FinCEN also offers an option to upload a pdf online. Finally, FinCEN has offered the possibility of a System-to-System Application Programming Interface or API, which some larger firms filing reports on behalf of many clients might use.
What will FinCEN do with the reported information? FinCEN will make the BOIR information available upon request to: (1) federal agencies engaged in national security, intelligence, or law enforcement activity; (2) state, local, or tribal law enforcement agencies; (3) foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities; (4) financial institutions using BOI to facilitate compliance with customer due diligence requirements under applicable law; (5) federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing those same financial institutions; (6) Treasury officers and employees. The information will not be publicly available. [However, you can assume it will be available to any government agency that deals with crimes or taxes.] If there are any inconsistencies in your business documents and tax filings, it’s time to make everything consistent as you comply with the Corporate Transparency Act.
Daniel Van Slyke Attorney at Law can help you determine how the Corporate Transparency Act impacts your business and the steps you must take to meet its reporting requirements. Click here to schedule an appointment.