Beginning January 1, 2024, a significant number of businesses have been required to comply with the Corporate Transparency Act (CTA). The legislation has impacted an anticipated 32 million businesses in its first year and will continue to apply to millions of new businesses every year.
We want to provide preliminary information about the CTA for businesses that must now comply with this new reporting requirement. Keep in mind that this information is meant for general purposes and should not be applied to your specific circumstances without consultation with competent legal counsel.
Please note, there is not clear guidance on CPAs filing these on behalf of clients. Due to the sensitive information the reports require and legal concerns that CPAs and non-attorney tax professionals providing assistance to clients in this arena could be deemed engaging in the unauthorized practice of law, we are not able to file these or provide specific guidance on who is required to file, even for our clients
What Is the Corporate Transparency Act?
The CTA became law on January 1, 2021, and went into effect on January 1, 2024. The legislation requires certain entities to disclose beneficial ownership information (BOI) from people who own or control a company.
Under the CTA, most reporting companies operating in the United States must file information regarding each beneficial owner with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. FinCEN maintains a database with information about beneficial owner(s) documented by reporting companies.
What Is the Purpose of the Corporate Transparency Act?
The CTA was enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA), and the intent of the BOI reporting requirement is to help United States law enforcement combat money laundering, the financing of crime and terrorism, and other illicit activity.
Is the Corporate Transparency Act Part of the Tax Code?
No, the CTA is not part of state or federal tax codes. Instead, it is a part of the Anti-Money Laundering Act of 2020 portion of the NDAA. Under the CTA, BOI reports will not be filed with the IRS but with FinCEN.
Who Does the Corporate Transparency Act Apply to?
As defined by the CTA, reporting companies can include both domestic and foreign entities.
A domestic reporting company is a limited liability company (LLC), a corporation, or any similar entity created by the filing of a document with a state, similar office within that state, or Tribal jurisdiction. Domestic entities that are not created by the filing of a document with a state or similar office are not required to report under the CTA.
A foreign reporting company required to report under the CTA includes an LLC, a corporation, or any similar entity that is formed under the law of a foreign country and is registered to conduct business in any state or tribal jurisdiction by filing a document with a state or similar office.
Who Is Exempt from the Corporate Transparency Act?
FinCEN lists 23 categories of exempt entities that are not considered reporting companies. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, public utilities, insurance companies, and certain inactive entities, among others.
A significant category is large operating entities, which are exempt from filing. To qualify for this exemption, the company must meet all of the following criteria:
Employ more than 20 people full-time in the U.S.
Have reported gross revenue or sales of at least $5 million on a prior year’s tax return
Be physically present in the U.S.
Many of these exempted entities are already heavily regulated by the government and therefore already disclose their BOI to a government authority.
The Secretary of the Treasury and the U.S. Attorney General can also otherwise designate a company as exempt from CTA reporting requirements.
Who Are Beneficial Owners?
A beneficial owner of a reporting company is any individual who, directly or indirectly, either 1) exercises “substantial control” over a reporting company or owns or controls at least 25% of the ownership interests (equity, stock, voting rights, capital or profit interests, etc.) 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. All senior officers of a reporting company are considered beneficial owners, regardless of formal title or if they have any ownership interest in the reporting company.
The CTA describes several individuals who are exempt from the beneficial owner exemption:
Minors
Individuals acting as custodians, agents, intermediaries, or nominees on someone else’s behalf
Contingent trust beneficiaries
Individuals whose only interest is derived solely from the right of inheritance
Employees, other than senior officers, whose only interest or control is derived solely from their employment status
There is no maximum number of beneficial owners reported to FinCEN.
There are different filing time frames depending on when an entity was registered/formed or if there have been any changes to the BOI since filing.
Existing entities (created/registered before January 1, 2024) must file their initial reports no later than January 1, 2025. New entities created/registered after January 1, 2024, must file their initial reports within 90 days of their creation or registration. Starting December 31, 2024, new entities must file within 30 days of their creation or registration.
If there have been any changes to previously reported information or an entity discovers inaccuracies in previously filed reports, the reporting company must file an updated report within 30 days.
What Information Must Be Reported?
As part of their BOI report, an entity must file information about itself, its beneficial owners, and company applicants.
The reporting company must report the full name of the entity, any trading or “doing business as” (DBA) name, business address, an Employer Identification Number (EIN), and the state or Tribal jurisdiction where it was created. Regarding beneficial owners and any company applications (the individuals or business that filed the paperwork to form the entity), required information includes their full legal name, birth date, home address, and an image of acceptable identification documentation (such as a driver’s license or passport).
Is Reported Information Public?
The information in BOI reports collected by FinCEN is not made public. However, the contents of the report are available to some government agencies and for the purposes of law enforcement, national security, and intelligence. Additionally, financial institutions, regulatory agencies that supervise financial institutions, and the U.S. Department of the Treasury have access to BOI reports so they can fulfill certain reporting obligations.
How Do Companies File a Report?
BOI reports must be filed electronically via FinCEN’s e-filing system. There are two methods available to submit a report:
Filing out a web-based version of the BOI report and submitting it online
Uploading a completed PDF version of the BOI report
There is no fee for filing the report. The person who files the BOI report will need to provide their name and email address to FinCEN.
What Are the Penalties for Violating the Corporate Transparency Act?
Penalties for not complying with the BOI requirement and violating the CTA can result in civil penalties of up to $500 every day the violation continues. Additionally, violators are subject to criminal penalties of up to two years imprisonment and/or a fine of up to $10,000. These penalties vary depending on the type of violation and can apply to beneficial owners and/or officers of the company.
Can I Get Help from a Certified Public Accountant (CPA)?
Fisher, P.A. will not be filing reports on behalf of businesses. As this is a filing requirement with FinCEN instead of the IRS, we cannot answer or assist with these forms due to legal concerns. CPAs and non-attorney tax professionals who provide assistance to clients in this area could be considered engaging in the unauthorized practice of law (UPL).
We encourage businesses to seek trusted legal counsel for assistance with determining whether they meet the definition of a reporting company and how to fully comply with the CTA.
A Guide to the New 2024 Corporate Transparency Act (CTA): Everything You Need to Know
Beginning January 1, 2024, a significant number of businesses have been required to comply with the Corporate Transparency Act (CTA). The legislation has impacted an anticipated 32 million businesses in its first year and will continue to apply to millions of new businesses every year.
We want to provide preliminary information about the CTA for businesses that must now comply with this new reporting requirement. Keep in mind that this information is meant for general purposes and should not be applied to your specific circumstances without consultation with competent legal counsel.
Please note, there is not clear guidance on CPAs filing these on behalf of clients. Due to the sensitive information the reports require and legal concerns that CPAs and non-attorney tax professionals providing assistance to clients in this arena could be deemed engaging in the unauthorized practice of law, we are not able to file these or provide specific guidance on who is required to file, even for our clients
What Is the Corporate Transparency Act?
The CTA became law on January 1, 2021, and went into effect on January 1, 2024. The legislation requires certain entities to disclose beneficial ownership information (BOI) from people who own or control a company.
Under the CTA, most reporting companies operating in the United States must file information regarding each beneficial owner with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. FinCEN maintains a database with information about beneficial owner(s) documented by reporting companies.
What Is the Purpose of the Corporate Transparency Act?
The CTA was enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA), and the intent of the BOI reporting requirement is to help United States law enforcement combat money laundering, the financing of crime and terrorism, and other illicit activity.
Is the Corporate Transparency Act Part of the Tax Code?
No, the CTA is not part of state or federal tax codes. Instead, it is a part of the Anti-Money Laundering Act of 2020 portion of the NDAA. Under the CTA, BOI reports will not be filed with the IRS but with FinCEN.
Who Does the Corporate Transparency Act Apply to?
As defined by the CTA, reporting companies can include both domestic and foreign entities.
A domestic reporting company is a limited liability company (LLC), a corporation, or any similar entity created by the filing of a document with a state, similar office within that state, or Tribal jurisdiction. Domestic entities that are not created by the filing of a document with a state or similar office are not required to report under the CTA.
A foreign reporting company required to report under the CTA includes an LLC, a corporation, or any similar entity that is formed under the law of a foreign country and is registered to conduct business in any state or tribal jurisdiction by filing a document with a state or similar office.
Who Is Exempt from the Corporate Transparency Act?
FinCEN lists 23 categories of exempt entities that are not considered reporting companies. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, public utilities, insurance companies, and certain inactive entities, among others.
A significant category is large operating entities, which are exempt from filing. To qualify for this exemption, the company must meet all of the following criteria:
Many of these exempted entities are already heavily regulated by the government and therefore already disclose their BOI to a government authority.
The Secretary of the Treasury and the U.S. Attorney General can also otherwise designate a company as exempt from CTA reporting requirements.
Who Are Beneficial Owners?
A beneficial owner of a reporting company is any individual who, directly or indirectly, either 1) exercises “substantial control” over a reporting company or owns or controls at least 25% of the ownership interests (equity, stock, voting rights, capital or profit interests, etc.) 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. All senior officers of a reporting company are considered beneficial owners, regardless of formal title or if they have any ownership interest in the reporting company.
The CTA describes several individuals who are exempt from the beneficial owner exemption:
There is no maximum number of beneficial owners reported to FinCEN.
The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.
When Must Companies Report?
There are different filing time frames depending on when an entity was registered/formed or if there have been any changes to the BOI since filing.
Existing entities (created/registered before January 1, 2024) must file their initial reports no later than January 1, 2025. New entities created/registered after January 1, 2024, must file their initial reports within 90 days of their creation or registration. Starting December 31, 2024, new entities must file within 30 days of their creation or registration.
If there have been any changes to previously reported information or an entity discovers inaccuracies in previously filed reports, the reporting company must file an updated report within 30 days.
What Information Must Be Reported?
As part of their BOI report, an entity must file information about itself, its beneficial owners, and company applicants.
The reporting company must report the full name of the entity, any trading or “doing business as” (DBA) name, business address, an Employer Identification Number (EIN), and the state or Tribal jurisdiction where it was created. Regarding beneficial owners and any company applications (the individuals or business that filed the paperwork to form the entity), required information includes their full legal name, birth date, home address, and an image of acceptable identification documentation (such as a driver’s license or passport).
Is Reported Information Public?
The information in BOI reports collected by FinCEN is not made public. However, the contents of the report are available to some government agencies and for the purposes of law enforcement, national security, and intelligence. Additionally, financial institutions, regulatory agencies that supervise financial institutions, and the U.S. Department of the Treasury have access to BOI reports so they can fulfill certain reporting obligations.
How Do Companies File a Report?
BOI reports must be filed electronically via FinCEN’s e-filing system. There are two methods available to submit a report:
There is no fee for filing the report. The person who files the BOI report will need to provide their name and email address to FinCEN.
What Are the Penalties for Violating the Corporate Transparency Act?
Penalties for not complying with the BOI requirement and violating the CTA can result in civil penalties of up to $500 every day the violation continues. Additionally, violators are subject to criminal penalties of up to two years imprisonment and/or a fine of up to $10,000. These penalties vary depending on the type of violation and can apply to beneficial owners and/or officers of the company.
Can I Get Help from a Certified Public Accountant (CPA)?
Fisher, P.A. will not be filing reports on behalf of businesses. As this is a filing requirement with FinCEN instead of the IRS, we cannot answer or assist with these forms due to legal concerns. CPAs and non-attorney tax professionals who provide assistance to clients in this area could be considered engaging in the unauthorized practice of law (UPL).
We encourage businesses to seek trusted legal counsel for assistance with determining whether they meet the definition of a reporting company and how to fully comply with the CTA.
For more information about the CTA, visit www.aicpa-cima.com/boi.
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