The Corporate Transparency Act: A Comprehensive Guide

Introduction

2024 is a new year, and with it comes new rules and regulations from the United States government. A new law that will affect a lot of businesses in the U.S. is the Corporate Transparency Act (CTA). Read on to learn more about the CTA and how it will impact you and your business.

What is the Corporate Transparency Act?

The Corporate Transparency Act is one of the widest-reaching federal business entity laws ever enacted and, according to FinCEN, is designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system. The agency believes the rule will help stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers and those who would use anonymous shell companies, to hide their illicit proceeds.

What is the CTA’s Beneficial Ownership Information Reporting Rule?

The Act’s Beneficial Ownership Information (BOI) Reporting Rule mandates that applicable businesses submit identifying details into a federal database maintained by the United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The database, the Beneficial Ownership Secure System (BOSS), will only be accessible to law enforcement officials in the U.S. and internationally.

There is no fee for applicable businesses to submit their BOI to FinCEN and no annual reporting requirement. However, the CTA requires businesses to correct and update their report when necessary.

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Who Must Meet Corporate Transparency Act Reporting Requirements?

The Corporate Transparency Act affects privately held and nonprofit businesses but focuses more on small and medium-sized companies that generate less than $5 million in annual revenue and have fewer than 21 full-time employees (FTEs). Businesses required to comply with CTA reporting rules are called reporting companies. The two types of reporting companies include domestic businesses and foreign ones.

CTA reporting requirements pertain to two categories of individuals: the beneficial owners of the entity and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. A beneficial owner is defined as any individual who directly or indirectly exercises substantial control over a reporting company or company or owns or controls at least 25 percent of a reporting company’s ownership interests.

To what does substantial control refer? According to FinCEN, it is an individual who:

  • Serves as a senior officer of the company
  • Has authority over the appointment or removal of any senior officer or a majority of the board
  • Directs, determines or has substantial influence over important decisions made by the reporting company
  • Under the CTA, even senior officers and other individuals with control over the company who have no equity interest in the business are considered beneficial owners.

What Should Your CTA Report Include?

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.

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What is the Deadline to File CTA Reports?

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 Any Penalties for Not Complying with CTA Requirements?

There are multiple answers to this question — CTA non-compliance may result in penalties, both civil and criminal. Here is a summary of those penalties straight from FinCEN:

The willful failure to report complete or updated beneficial ownership information to FinCEN or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues or criminal penalties, including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.

The three types of BOI reporting violations subject to penalty consist of willful failure to file a report, providing false information and unauthorized disclosure of information.

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Are Any Businesses Exempt from the Corporate Transparency Act?

Most commonly exempted from the CTA reporting rules are heavily regulated businesses, sole proprietorships, unincorporated associations, tax-exempt entities, some general partnerships and large operating companies. What exactly is a large operating company? It is one that meets 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 offers an online list of the 23 types of businesses exempt from the CTA’s BOI reporting requirements.

To learn more about how to accurately report your BOI to FinCEN and avoid costly penalties – including possible jail time – contact our talented team at StenTam. And, be sure to check out our Insights page for additional information on the Corporate Transparency Act.

 

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