Insight Article

Corporate Transparency Act/Beneficial Ownership Information Reporting

December 22, 2023 | by Kushner LaGraize, LLC

The Corporate Transparency Act (CTA) signals transformative changes for businesses, particularly in relation to the reporting of beneficial ownership information. This legislation was primarily enacted to counter illegal activities such as money laundering, terrorism financing, and tax fraud, by enhancing transparency in the corporate sector.

The CTA is not a tax law. It is administered by the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury whose responsibility is to safeguard the U.S. financial system from illicit use. The law is scheduled to become effective January 1, 2024.

What entities are subject to the new CTA reporting requirements?

The new Corporate Transparency Act (CTA) imposes reporting requirements on a wide range of entities. Primarily, these requirements apply to corporations, limited liability companies (LLCs), and similar entities that are either created under the laws of a state in the United States or foreign entities registered to conduct business in the U.S. The CTA is particularly focused on entities that have a small number of employees and reported revenues, often characterized as 'shell' companies, which have been historically used for illicit activities due to their lack of transparency.

Who is considered a “beneficial owner” of a Reporting Company

A "beneficial owner" of a Reporting Company, as described under the Corporate Transparency Act, is an individual who, directly or indirectly, exercises substantial control over a company, owns 25% or more of the equity interests of the company, or receives substantial economic benefits from the assets of the company. These individuals are not merely nominal owners or proxies, but have significant influence or stakes in the company. The term 'beneficial owner' does not include minor children, persons acting as nominees, intermediaries, custodians, or agents on behalf of another individual, or those whose only interest in the company is through a right of inheritance.

Considerations for entities as they begin to prepare for the CTA

As entities start preparing for the Corporate Transparency Act (CTA), several key considerations come to the forefront. The CTA's primary objective is to combat illicit activities by requiring corporations and LLCs to disclose their beneficial owner(s) to FinCEN. Therefore, entities must first identify and gather detailed information about their beneficial owners, including their full legal names, dates of birth, current residential or business addresses, and unique identifying numbers from acceptable identification documents. Additionally, entities have to be prepared to report any changes in beneficial ownership within 30 days. In terms of compliance, they should update their internal systems and procedures to meet these new reporting requirements. 

Additional information regarding the BOI reporting requirements can be found at https://www.fincen.gov/boi.  We Strongly advise that you consider consulting with legal counsel if you have questions regarding the applicability of the CTA's reporting requirements and issues surrounding the collection of relevant ownership information.

Timing

In general, reporting companies created before or registered to do business as of December 31, 2023, have until January 1, 2025 to file an initial BOI report with FinCEN. Reporting companies created or registered to do business on or after January 1, 2024, have ninety (90) days from the date of their registration to file an initial BOI report. Reporting companies created or registered on or after January 1, 2025 have thirty (30) days from the date of their registration to file an initial BOI report. After filing an initial BOI report, reporting companies have thirty (30) days to file updated reports detailing statutorily-required changes about the reporting company and/or its beneficial owners.

Penalties

Failure to comply with CTA or missing filing deadlines can result in criminal (fines and/or imprisonment) or civil (monetary) penalties. There is a $500 per day penalty, up to $10,000, and imprisonment of up to two years for the failure to timely file initial or updated reports. Additionally, any person who, without authorization, knowingly discloses or uses BOI is liable for $500 per day, up to $250,000, and up to five years of imprisonment.

Can your CPA firm assist?

Please note that CPA firm malpractice insurance carriers have determined that assisting clients with this compliance is the unauthorized practice of law. Therefore, we recommend contacting your law firm regarding your filing obligations.