As of January 1, 2024, a significant development has unfolded for businesses, impacting over 32 million entities. The Corporate Transparency Act (CTA), embedded within the National Defense Authorization Act for Fiscal Year 2021, has ushered in a new era of transparency by mandating the disclosure of Beneficial Ownership Information (BOI) for certain entities.
Overview of the Corporate Transparency Act
The Corporate Transparency Act aims to bolster the efforts of law enforcement in combating financial crimes such as money laundering and terrorism financing. Unlike tax regulations, the CTA operates under the umbrella of the Bank Secrecy Act. Consequently, entities subject to the CTA must submit BOI reports not to the IRS but to the Financial Crimes Enforcement Network (FinCEN), a branch of the Department of Treasury.
Entities Required to Report
U.S. Entities: Corporations, Limited Liability Companies (LLCs), or similar entities registered with a state secretary or similar office.
Foreign Entities: Similar entities formed abroad but registered to conduct business in the U.S.
While there are exemptions for specific categories, such as publicly traded companies, banks, credit unions, and tax-exempt organizations, it’s crucial to note that these exemptions are distinct, and many entities may already comply with other reporting requirements. Additionally, “large operating entities” meeting specific criteria are also exempt.
Defining a Beneficial Owner
The CTA defines a beneficial owner as an individual with “substantial control” over or at least a 25% ownership interest in a reporting company. The term “substantial control” is further detailed in the CTA regulations.
New Entities (from 1/1/24): Must file within 30 days (a 90-day extension is proposed for entities created in 2024).
Existing Entities: Must file by 1/1/25.
Updates or Corrections: Reports must be filed within 30 days of changes or discovering inaccuracies.
Entities must submit comprehensive information, including company details (name, business address, jurisdiction of formation, and Taxpayer Identification Number) and detailed information about beneficial owners, including personal details and identification documentation.
The consequences for failing to meet the reporting requirements are profound. Non-compliance can result in fines of up to $10,000, daily penalties of $500, and potential jail time of up to two years.
As businesses navigate the complexities of the Corporate Transparency Act, we recommend you seek guidance to ensure compliance. Contact us today for more detailed information and assistance tailored to your business.