WHAT IS THE CORPORATE TRANSPARENCY ACT?
The Corporate Transparency Act (CTA), which is intended to assist law enforcement in combating money laundering, tax fraud, financing of terrorism, and other illegal activity, was enacted on January 1, 2021. It is estimated that the CTA will require more than 32 million entities to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Most of those entities will be small businesses.
WHICH COMPANIES MUST REPORT TO FinCEN?
Domestic and foreign entities that are a “Reporting Company” and do not fall within one of the exemptions are required to file a BOI Report with FinCEN:
- A Domestic Reporting Company is a corporation, LLC, or other entity that is created by the filing of a document with a secretary of state. Domestic Reporting Companies can include limited liability partnerships and professional service entities that are created by filing a document with the secretary of state. Businesses that are not created through the filing of a document with the secretary of state or a similar office, such as sole proprietorships, certain trusts, and general partnerships, are not Reporting Companies.
- Foreign Reporting Companies are non-US entities that are formed under the law of a foreign country and are registered to do business in any state by the filing of a document with the secretary of state or any similar office.
WHICH COMPANIES ARE EXEMPT FROM REPORTING?
The CTA exempts from reporting certain larger, more highly regulated, tax-exempt governmental authorities and inactive companies that meet the requirements of such exemptions.
WHICH INDIVIDUALS MUST BE IDENTIFIED IN THE REPORTING?
The CTA requires that a Reporting Company’s BOI Report identify:
- The Reporting Company’s beneficial owners, which is defined as any individual who directly or indirectly either (a) exercises substantial control over the reporting company or (b) owns or controls twenty-five percent (25%) or more of the ownership interests of the Reporting Company.
- In the case of a Reporting Company that is created or becomes a foreign Reporting Company on or after January 1, 2024, the Company Applicants, which are the individuals that either (a) directly files the document that creates a domestic Reporting Company or first registers the foreign Reporting Company to do business in the United States; or (b) is primarily responsible for directing or controlling the filing of the relevant document by another, if more than one person is involved in the filing.
WHAT INFORMATION MUST BE INCLUDED IN A BOI REPORT?
A Reporting Company must disclose its full legal name, any trade name, its complete current address, and its taxpayer identification number in its BOI Report.
A Reporting Company also must disclose the following for each of its individual beneficial owners, and, in the case of a Reporting Company created or registered on or after January 1. 2024, its Company Applicants:
- Full legal name
- Date of birth
- Current address
- Unique identifying number from a nonexpired US passport, state or local government identification document, or a state-issued driver’s license
- An image of the identification document.
WHEN MUST THE INITIAL BOI REPORT BE FILED?
A Reporting Company that was created or became a foreign Reporting Company before January 1, 2024, must file its initial BOI Report on or before January 1, 2025.
A Reporting Company that is formed on or after January 1, 2024, and before January 1, 2025, must file its initial BOI Report within ninety (90) days of formation.
A Reporting Company that is formed on or after January 1, 2025, must file its initial BOI Report within thirty (30) days of formation.
If an exempt entity no longer qualifies for exemption from the reporting requirements, it must file an initial BOI Report within thirty (30) days after the date the exemption ceased to apply.
WHEN MUST A BOI REPORT BE UPDATED OR CORRECTED?
A Reporting Company must update its previously filed BOI Report within 30 days if any required information regarding the Reporting Company or its beneficial owners changes and correct any inaccuracies in previously filed reports.
HOW IS A BOI REPORT FILED?
BOI Reports are filed electronically at the FinCEN’s website: https://www.fincen.gov/boi.
WHAT ARE THE PENALTIES FOR FAILURE TO COMPLY WITH THE CTA?
The CTA provides civil and criminal penalties for violations, including a fine of up to $10,000, imprisonment for up to two years, or both for any person who willfully provides a false or fraudulent BOI Report or fails to report a complete or updated BOI Report to FinCEN. Both the Reporting Company and its senior officers can be responsible for such penalties.
DO I NEED TO COMPLY? I THOUGHT THAT A COURT RULED THAT THE CTA IS UNCONSTITUTIONAL.
On March 1, 2024, a U.S. District Court judge in Alabama ruled that the CTA is unconstitutional and issued an injunction. However, the injunction permanently enjoining FinCEN from enforcing the CTA only covers the plaintiffs in that particular case. The U.S. Justice Department is appealing the Alabama court’s ruling, and on March 4, 2024, FinCEN issued a notice that states that it will continue to implement the CTA for all covered entities other than the plaintiffs in the Alabama case.
Notice:
Attorney Advertising. This article is for informational purposes only, is not exhaustive, and is not, and should not be construed as, legal advice or legal services. You should consult with an attorney to determine the applicability of any laws or rules to your individual situation.
Please contact J. Michael Wood. or your Boylan Code attorney for assistance complying with the Corporate Transparency Act. Phone 585.232.5300.
Dated: April 9, 2024.
