The United States Congress passes numerous pieces of legislation each year. Most of the laws and mandates, though, are highly-publicized if they affect a lot of Americans. That has not been the case with the Corporate Transparency Act (CTA).
What is the Corporate Transparency Act?
Passed by Congress in 2021, it was enacted as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for FY 2021. One of the widest-reaching federal business entity laws ever enacted, the CTA is scheduled to take effect on January 1, 2024.
A major component of the Corporate Transparency Act is its Beneficial Ownership Information (BOI) Reporting Rule. It requires applicable businesses to submit identifying details (i.e., beneficial ownership, indirect, human, control and service provider data) into a federal database maintained by the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This information will be accessible to law enforcement agencies in the U.S. and internationally — but not the public.
Prior to the enactment of the CTA, entity beneficial owner disclosure was only (if at all) the purview of state or tribal law. States like New Mexico did not disclose the owners of companies registered there. Compliance with the regulations of the Corporate Transparency Act is not only mandatory but also advisable.
To What Type of Businesses Does the CTA Apply?
Impacted by the Corporate Transparency Act in 2024 will be an estimated 32.6 million current businesses. Approximately five million newly formed businesses will be affected by the law each subsequent year.
Just who must comply with the new CTA regulations? The law applies to individuals who own 25 percent or more of a business or exercise substantial control over one. Included are “reporting companies,” such as corporations, limited liability corporations (LLCs) or partnerships (LLPs), business trusts or any other entity registered by filing paperwork with a Secretary of State office or a similar Indian tribal office.
The CTA also affects privately held and nonprofit businesses but focuses more on small and medium-sized businesses that generate less than $5 million in annual revenue and have fewer than 21 full-time employees (FTEs).
We will expand later in this blog on the types of businesses exempt from the new law. It’s important to note that the CTA requirements are not part of any tax filings.
What is the Purpose of the Corporate Transparency Act?
The answer to this question is multi-faceted, but the primary reason Congress enacted the CTA is to combat financial crimes to protect the U.S. financial system along with the country’s national security. By collecting Beneficial Ownership Information for companies formed in the U.S. and more closely monitoring their activities, FinCEN will attempt to reduce the occurrence of money laundering, tax evasion and terrorist financing.
Another impetus for the Corporate Transparency Act was to mitigate the use of shell companies utilized to covertly commission financial crimes. With the database created for the CTA, law enforcement officials have improved accessibility to more up-to-date Beneficial Ownership Information.
What Does Beneficial Ownership Information Include, and When Is It Due to FinCEN?
The Reporting Rule of the CTA was issued on September 30, 2022 and outlines the personal identifying data that must be submitted for those individuals who own 25 percent or more of a business or exercise substantial control over one. The following information must be filed through an online interface called the Beneficial Ownership Secure System (BOSS):
- Full legal name
- Date of birth
- Current residential or commercial street address
- A unique identifying number from the individual’s acceptable government-issued identification (i.e., state ID, driver’s license, passport) and an image of that ID
This data must be accurately reported to FinCEN on an ongoing basis, not just once. Businesses registered with a secretary of state’s office before January 1, 2024 must submit their BOI to FinCEN by December 31, 2024. Companies registered on or after January 1, 2025 have a limit of 90 calendar days to complete their filing. FinCEN issued a final rule on November 30, 2023 that extended that filing day from its initial 30-day deadline.
Are There Penalties for CTA Noncompliance?
Everyone makes mistakes, and business owners who voluntarily submit a report correcting any inaccurate data filed with FinCEN within 90 days of the deadline for their initial report have a safe harbor from TCA penalties. Individuals who do not comply with CTA requirements or willfully report inaccurate information are subject to civil and criminal penalties, including fines and possible jail time.
Monetary penalties enforced by FinCEN are per violation and range from ($500 per day to up to $10,000). Criminal penalties for willfully failing to report BOI or filing inaccurate information include a possible felony with incarceration for up to two years and /or a fine of up to $10,000.
What Types of Businesses are Exempt from the Corporate Transparency Act’s Reporting Requirements?
The most common types of businesses exempted from CTA reporting are heavily regulated ones and large operating companies. Large operating companies include businesses that meet all three of the following criteria:
- The business must have a commercial, physical street address in the United States.
- The business must have 21 or more full-time employees (excluding full-time equivalent employees, part-time employees, independent contractors and leased employees).
- The business must have filed a prior year’s federal income tax return demonstrating more than $5 million in annual, U.S.-only gross receipts or sales.
FinCEN also has an online list of the 23 types of businesses exempt from the CTA’s BOI reporting requirements. These 23 exemptions are:
| Securities reporting issuers | Securities brokers or dealers | State-licensed insurance producers | Tax-exempt entities |
| Governmental authorities | Securities exchange or clearing agencies | Commodity Exchange Act registered entities | Entities assisting a tax-exempt entity |
| Banks | Other Exchange Act registered entities | Accounting firms | Large operating companies |
| Credit unions | Investment companies or advisers | Public utilities | Subsidiaries of certain exempt entities |
| Depository institution holding companies | Venture capital fund advisers | Financial market utilities | Inactive entities |
| Money services businesses | Insurance companies | Pooled investment vehicles |
Conclusion
If you have not seen the Corporate Transparency Act in the news, you’re not alone — many businesses will be affected by it, but not all of them are aware of it. At StenTam, we work with business owners to ensure your BOI reporting is accurate and submitted promptly so you avoid any civil or criminal penalties. Contact us today to take the next step in CTA compliance.
