Updated 2/24/2024
How to Comply with the Corporate Transparency Act
Starting January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act (CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.
It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.
The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
Below is some information for you to consider for complying with this new reporting requirement. This information is meant to be general-only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel.
Who Needs to Report?
Reporting companies include corporations, LLCs, limited liability partnerships, limited partnerships, and business trusts, and comprise not only companies formed in the United States but also foreign entities that register or qualify to do business in any state.
Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
a) Employ more than 20 people in the U.S.;
b) Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
c) Be physically present in the U.S.
Information and guidance on exemptions, FAQs, and how to file can be found on FinCEN’s website at www.fincen.gov/boi.
When must companies file?
There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
- New entities (created/registered in 2024) — must file within 90 days
- New entities (created/registered after 12/31/2024) — must file within 30 days
- Existing entities (created/registered before 1/1/24) — must file by 1/1/25
- Updates- within 30 days of any change including new address. All reporting companies have the responsibility to update and correct their reports as needed.
What sort of information is required to be reported?
Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company
How to Comply
Reporting Companies can make the free, federally required one-time filing and any future updates directly by going online and registering at “www.fincen.gov/boi. This site also includes useful information on reporting requirements and a small business guide FinCEN will provide a confirmation of receipt once a report is successfully filed.
Beware of Scams
Remember that this is a free, one-time, federally required filing
The Better Business Bureau issued a warning that scammers are exploiting the new law to convince business owners to give up their personal information. FinCEN does not send unsolicited requests, and filings are completed online. If you receive any emails, letters, or phone calls asking you to share your information to comply with the new regulations, they are most likely fraudulent. You should not click any links or scan any QR codes.
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit www.aicpa-cima.com/boi.
You will see the following paragraph in our engagement letters alerting you about the CTA and a link to the FinCEN to seek out more information and reporting requirements.
Corporate Transparency Act/Beneficial Ownership Reporting
Assisting you with your compliance with the Corporate Transparency Act (“CTA”), including beneficial ownership information (“BOI”) reporting, is not within the scope of this engagement. You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. We shall have no liability resulting from your failure to comply with CTA. Information regarding the BOI reporting requirements can be found at www.fincen.gov/boi.
Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection of relevant ownership information.
In addition to the above-mentioned website, additional information can be found at: https://www.fincen.gov/boi/small-business-resources
How Can I Get Help?
Once again, information and guidance on exemptions, FAQs, and how to file can be found on FinCEN’s website at www.fincen.gov/boi. You can also contact the Illinois Secretary of State’s Department of Business Services at (800) 252-8980.
While we recognize that this new reporting requirement will raise questions and you may reach out to Warady & Davis for guidance, it is a FinCEN and not IRS matter. As such, we recommend that if you have questions or need assistance, you should contact your attorney.
Questions?
Please contact your attorney or Warady & Davis LLP advisor(s) with your questions at 847-267-9600; info@waradydavis.com.
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