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Reporting Obligations Required Under the Corporate Transparency Act

Reporting Obligations Required Under the Corporate Transparency Act

The Corporate Transparency Act (CTA), signed into law on Jan. 1, 2021, expanded anti-money laundering laws and established new reporting requirements for certain companies doing business in the U.S.

Beginning in 2024, many small businesses are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity. Below is a summary of the key provisions related to beneficial ownership reporting under the Corporate Transparency Act.

Who must file

The CTA applies to certain domestic and foreign entities, including corporations, limited liability companies (LLCs), and similar entities created or registered under state law in the U.S. Entities that meet one of the 23 exemptions do not have to report. 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, a large operating company that 1) employs more than 20 full-time employees, 2) has more than $5 million in gross revenue in the prior year, and 3) has an office in the U.S. is exempt from reporting.

Reporting obligations

Covered entities must submit beneficial ownership information to the FinCEN, part of the U.S. Department of the Treasury. Beneficial owners are individuals who meet certain ownership or control criteria, which include individuals who directly or indirectly:

  • Own 25 percent or more of the entity's equity interests, or
  • Exert substantial control over the entity through other means (i.e., serve as a senior officer, have substantial influence over important decisions, etc.)

Information 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.

Timing of reporting

Reporting deadlines will vary based on when the company was created, following this reporting schedule:

  • Companies created before January 1, 2024, will have until January 1, 2025, to comply with the CTA filing requirements.
  • Companies created on or after January 1, 2024, and before January 1, 2025, will have 90 days upon creation to file the initial report.
  • Companies created on or after January 1, 2025, will have 30 days upon creation to file the initial report.
  • Entities will have 30 days to report changes to the previously reported information.

Penalties for non-compliance

Failure to comply with CTA or missing filing deadlines can result in criminal (fines and/or imprisonment) or civil (monetary) penalties. A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.

Additional CTA resources

FinCEN provides a number of resources at the BOI homepage including FAQ’s, Small Entity Compliance Guide, Quick Reference and news releases.

Please contact your legal counsel for assistance with your CTA reporting questions or assistance with you CTA reporting requirements.

 

02/01/2024

 

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