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.
Who is required to report under the CTA’s BOI reporting requirement?
All domestic and foreign entities that have filed formation or registration documents with a U.S. State (or Indian tribe) unless they meet one of the 23 enumerated exceptions (see question C.2. of FinCEN FAQs for a full list of exemptions).
Certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must meet all the following criteria:
• Employ more than 20 people in the U.S.
• Have reported gross revenue (or sales) of over $5 million on the prior year’s tax return
• Be physically present in the U.S.
What information do businesses need to report?
• Full legal name of the reporting company and any trade or DBA names
• Business address
• State or Tribal jurisdiction of formation or registration
• IRS Taxpayer Identification Number (EIN, TIN, etc.)
Additionally, each reporting company must report the following details on its beneficial owners and, for newly created entities its company applicant(s):
• Social Security Number
• Unique identifying number and issuing jurisdiction from an acceptable identification document and image of such document (e.g., driver’s license or passport)
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% of the ownership interest 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 even if they have no ownership interest in the reporting company.
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
• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days
Who will file?
Company owners and law firms, on behalf of clients, should be authorized to file. It is anticipated that on behalf of clients accounting firms will also be able to file, but there is not yet clear guidance.
How will companies file?
The Treasury has stated a web portal for filing will be available through their website. The reporting framework and system are not yet available. As such, this requirement could be delayed.
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 and up to two years of jail time. For more information about the CTA, visit www.aicpa-cima.com/boi.
Beware of Fraudulence and Scammers
There is a rising number of bad actors pretending to be FinCEN representatives to acquire business and individual information. Be cautious before giving away personal and business information.
BOI reporting is still a developing requirement. Please contact our office at 417-881-6919 with questions.