In recent times, there has been a significant shift towards greater transparency in financial transactions, and businesses are now required to adhere to new regulations regarding the beneficial owners of businesses.  Many people would be surprised to learn that the Corporate Transparency Act (CTA) is not a part of the Internal Revenue Code. Instead, it is 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 CTA, beneficial ownership interest (BOI) reports will not be filed with the IRS, but with the office of Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury that is separate from the IRS. In this article, we will explore the key points of this new transparency act, including important reporting requirements and deadlines you should be aware of.

Understanding Beneficial Ownership

Beneficial ownership refers to the individuals who, directly or indirectly, either:

• Exercise “substantial control” over a reporting company; or
• Own or control at least 25% of the ownership interests of a reporting company.

A “company applicant” refers to individuals who:

• File the formation document that creates the legal entity or registers the entity to do business in the U.S.; or
• The individual primarily responsible for directing or controlling the filling of such documents. 

There can be up to two company applicants for a reporting company. Beneficial ownership also includes any senior officers of the reporting company, regardless of formal title or if they have ownership interest in the reporting company. The purpose of beneficial ownership reporting is to uncover the true owners behind business entities to prevent illicit activities such as money laundering and fraud.

Entities created prior to January 1, 2024, do not need to report company applicant information. Newly created entities will need to report company applicant information but will not be required to update it. 

Key Components of the Transparency Act

Reporting Entities

Businesses that fall under the scope of CTA include non-exempt corporations, limited liability companies (LLCs), limited liability partnerships (LLPs) and other legal entities. Entities organized both inside and outside the U.S. may also be subject to the CTA’s reporting requirements. Domestic companies that were created by the filing of a document with a Secretary of State or any similar office under the law of a state or Indian tribe are required to comply. Foreign companies subject to CTA reporting include entities that are formed under the law of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by filing a document with a Secretary of State or any similar office.  It is important to note that entities not created by state filings, such as trusts, are generally not subject to the CTA.

Reporting Requirements

1. Company Information and Identification of Beneficial Owners

Businesses are required to identify and verify the beneficial owners associated with the company. For the reporting company you will need: (i) the full legal entity name, (ii) DBA (if applicable), (iii) principal business address, (iv) jurisdiction of formation, and (v) the business tax ID number (EIN). For each beneficial owner and company applicant, you will need: (i) full legal name, (ii) date of birth, (iii) current residential street address, (iv) the identification number and the place of issuance for a valid U.S. passport or driver’s license or other government-issued ID, and (iv) an image of this ID. 

Reporting companies may provide a FinCEN identifier for a beneficial owner or company applicant instead of the information listed above. You can request that the FinCEN identifier be issued with your first official filling. 

1. Submission of Reports

   There are two methods for submitting the required information to FinCEN: a fillable PDF option and an online filing option. If you choose to submit information with the PDF you will need Adobe Reader to prepare the report offline at your own pace and you can reuse the PDF beneficial ownership interest report (BOIR) when filing updates/corrections later on. You will also be able to download the BOIR transcript upon submission. If you choose to file a BOIR electronically, you will not need Adobe Reader, since everything is prepared online and submitted immediately. To file updates or corrections you would need to prepare a new BOIR online.

1. Timeline for Reporting

   Companies are typically given a specific timeframe within which they must submit their BOIRs. Missing the deadline may result in stiff penalties, so it’s essential to be aware of and adhere to the reporting timeline. If the entity is formed or registered during the 2024 calendar year, you must file within 90 days. If the entity is formed after December 31, 2024, you must file within 30 days. Existing entities that were formed or registered prior to January 1, 2024, must file by January 1, 2025. 

Penalties for Non-Compliance

Failure to comply with the CTA’s beneficial ownership reporting requirements can result in severe penalties. These may include civil penalties of up to $500/day that a violation continues as well as criminal penalties including a $10,000 fine and/or up to two years of imprisonment. 

As the business landscape evolves, compliance with the Corporate Transparency Act and beneficial ownership reporting is crucial. Businesses should proactively assess their ownership structures, identify beneficial owners, and ensure timely and accurate reporting. Fleurinord Law is ready to answer your questions and help you navigate the complexities of this new filing requirement. Get our free CTA FAQs Guide to learn more and contact us at 888-904-2297 if you need help with your filing.