In 2021, Congress enacted the Corporate Transparency Act (the “CTA”) that goes into effect on January 1, 2024 and requires many businesses to report personally identifying information about their owners to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Who must report?
The CTA defines “reporting companies” as corporations, limited liability companies, limited partnerships, business trusts and “similar entities” created or registered by filing a document with a secretary of state.
Who is exempt from reporting?
The CTA’s reporting regime has 23 exemptions, which primarily consist of entities that are already subject to government oversight or regulation, such as banks, insurance companies, governmental authorities, public accounting firms, charities, and other tax-exempt organizations.
The CTA also excludes from reporting any “large operating company” that:
- has an operating presence at a physical office in the United States,
- has 21 or more full-time employees in the United States, and
- has more than $5 million in sales or gross receipts in the US.
For the third requirement, if an entity files a consolidated tax return as part of an affiliated group of corporations, the applicable amount is the amount reported on the consolidated return for such group. Notably, this third requirements means that no entity formed after January 1, 2024, will fall within the “large operating company” exception, at least initially.
What must be reported?
- Full name of company
- Any trade name or “DBA”
- The state of formation
- IRS Tax ID number and EIN, if applicable
- Information on every individual who is a beneficial owner of the reporting company
A “beneficial owner” is an individual who, directly or indirectly, either (a) exercises substantial control over the reporting company or (b) owns or controls at least 25% of the ownership interest of the reporting company. Companies must initially report – as well as keep current and accurate – the following, the following information to FinCEN for each beneficial owner:
- Full legal name,
- Date of birth,
- Residential physical street address, and
- An image of an acceptable government-issued ID (such as a U.S. passport or state-issued driver’s license) that includes both an ID number and a photograph.
For reporting companies formed on or after January 1, 2024, the reporting company must also provide the same information for “company applicants” (i.e., incorporators and organizers).
How and when do I report?
Filings will be made electronically through the Beneficial Ownership Secure System (“BOSS”), which is a web-based portal still being developed by the Treasury Department.
- Businesses in existence before January 1, 2024: Initial report due by December 31, 2024.
- Businesses formed on or after January 1, 2024: Initial report due within 90 days after formation.
Regardless of when the business is formed, any subsequent changes need to be reported within 30 days.
What if I don’t report?
There are steep, escalating fines ($500 per day, up to $10,000 per violation) and possible jail time (up to two years) for failing to comply with the CTA requirements correctly and on time. In addition, subsequent events that would have required an amendment to the required but missing filing (had the initial report been made) could result in additional penalties. So, failing to timely file an initial report may result in aggregate fines exceeding $10,000.
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For current guidance and updates from FinCEN on the rules and existing regulations, see FinCEN’s BOI Small Entity Compliance Guide . If you have questions regarding the Corporate Transparency Act and whether your entity would be classified as a Reporting Company or whether you would be classified as a Beneficial Owner or Company Applicant for an entity you are involved with, please contact Chris Dix at cdix@smithhulsey.com, Ann Canady at acanady@smithhulsey.com or Sarah Knight at sknight@smithhulsey.com.
The intention of this publication is to offer readers information on current topics of general interest. It is important to note that this publication does not establish, suggest, or formalize the existence of an attorney-client relationship. The content herein should not be regarded as legal advice or opinion, as it may not be applicable to the specific circumstances of a particular situation. Given that guidance in various areas is consistently evolving, it is advisable to periodically review for updated guidance or seek advice from legal counsel prior to making any decisions.
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