The Corporate Transparency Act (CTA) was enacted in 2021, to combat bad actors from using shell companies for illicit purposes such as money laundering, tax fraud and terrorism financing.  Under this law, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) established a Beneficial Ownership Information (BOI) reporting requirement for all nonexempt small to midsized businesses.  Any entity subject to this reporting requirement is referred to as a “Reporting Company.”  Reporting companies need to report certain types of information about their “beneficial owners,” which refers to individuals who own or control the company.  More details are provided below.

What is a Reporting Company?

A Reporting Company may be domestic or foreign.

• A domestic Reporting Company is any entity, such as a corporation, LLC, LLP or other entity, that is formed after filing a document with a secretary of state (or similar office under state law or Indian tribe).
• A foreign Reporting Company is any entity such as a corporation, LLC, or other entity formed under the law of a foreign country and is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state (or similar office under state law or Indian tribe).

Exemptions from FinCEN’s BOI Reporting Rule

At present, there are 23 exemptions to the BOI reporting requirement.  They may be grouped into several categories, including large operating companies, public companies, certain types of regulated entities, entities involved in private equity and venture capital and subsidiaries of certain exempt entities.

Under the BOI rule, an entity may qualify as a large operating company if it meets the criteria listed below.

1. Has more than 20 full-time employees and at least 20 of these full-time employees are employed within the U.S.
2. Has a physical office within the U.S.
3. Filed a Federal income tax or information return in the U.S for the previous year with more than $5 million in gross sales or receipts (excluding gross sales or receipts from outside the U.S.), using the IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-R, IRS Form 1065 or other applicable IRS form.

What information should I report?

Reporting Companies must submit a report containing information about the company, beneficial owner(s) and company applicant to FinCEN electronically through its website, www.fincen.gov.  Information will be stored in FinCEN’s Beneficial Ownership Secure System (BOSS).

A beneficial owner is someone who exercises substantial control over a Reporting Company or owns/controls at least 25% of the Reporting Company’s ownership interests.  Individuals with “substantial control” may include a senior officer, someone that has appointment or removal authority or an important decision-maker.

A company applicant includes the person who files the document to create or register the reporting company and person responsible for directing/controlling the filing. The company applicant information requirement only applies to those companies created after January 1, 2024, or foreign reporting companies registered to do business in the U.S prior to January 1, 2024.

Types of Information to be provided:

• Company information – Full legal name of the company, any trade names or DBA names, company address, State or jurisdiction of formation and their Federal Taxpayer identification number.
• Beneficial owner – The person’s legal name, date of birth, current residential address, unique number ID and an image of a passport, driver’s license, etc. that contains the number ID.
• Company applicant – Includes the same type of information requested of beneficial owners.

Reporting Deadlines

FinCEN will accept reports beginning on January 1, 2024. However, reporting deadlines differ for businesses existing prior to January 1, 2024, vs businesses established after January 1, 2024.

• Existing Businesses – Reporting Companies created on or registered before January 1, 2024, must submit their initial BOI report to FinCEN by January 1, 2025.
• New Businesses – Reporting Companies created or registered in the calendar year 2024, must submit their initial BOI report to FinCEN within 90 days of their creation.

Any changes to a Reporting Company or beneficial ownership information must be reported to FinCEN within 90 days after the change occurred.

Penalties for Non-Compliance with the BOI Rule

Failure to comply with the BOI reporting requirements or missing filing deadlines may result in criminal or civil penalties.  These penalties may include $500 per day penalty up to $10,000 and imprisonment of up to 2 years.

Final Thoughts

CTM is providing this alert on an information-only basis.  FinCEN’s BOI reporting requirements will have a direct impact on many small and midsized businesses operating in the United States.  If you need further guidance on this new legal requirement, please consult with your attorney.  As the AICPA Member Insurance Programs states, “Providing technical or interpretive advice on CTA may rise to the practice of law.”  As a public accounting firm, CTM may not provide legal advice.  It is imperative that if you are one of the Reporting Companies, you establish a protocol within your organization to manage your initial filings with FinCEN as well as report any updates resulting from changes within your organization.

For additional questions, please refer to the Small Entity Compliance Guide.