As promised in my earlier newsletter article “Making Translucency Out of Transparency: Our Take on the Corporate Transparency Act” (June 20, 2023), we are continuing to monitor developments on this new significant reporting law.
As we rapidly approach 2024, which ushers in the first filing requirements under this law, it seems like a good time to remind you of the key concepts and deadlines of the Corporate Transparency Act (CTA).
Background
On January 1, 2021, Congress enacted the CTA as part of the Anti-Money Laundering Act of 2020. Congress passed the CTA to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.”
CTA and FinCEN
The CTA requires corporations, LLCs, and “other” entities to file a Beneficial Ownership Information (BOI) Report with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).
On September 29, 2022, FinCEN issued its first rule implementing the CTA regarding who must file, the required information, when the first report must be filed, and when to update the report.
The FinCEN rule describes two types of reporting companies: a domestic reporting company and a foreign reporting company. A domestic entity is a corporation, LLC, or other entity created by the filing of a document with the Secretary of State. A foreign reporting company is a corporation, LLC, or other entity created in a foreign country that is registered to do business in the U.S. by filing a document with the Secretary of State or similar office.
The rule doesn’t specifically define “other entities”. However, FinCEN has said that it expects to include LLPs, LPs, and business trusts.
The FinCEN rule has 23 exemptions. Most of these exemptions relate to entities that are currently required to report BOI. These include companies that file reports with the SEC, banks, insurance companies, accounting firms, and tax-exempt entities.
Exemptions and Key Dates
One key exemption is “a large operating company,” which is a company that employs more than 20 full-time employees in the U.S., has a large operating presence in a physical office in the U.S., and that filed a federal tax or information return for the previous year showing it had more than $5 million in gross receipts or sales.
All domestic and foreign reporting companies created or registered on or after January 1, 2024, must file their initial report within 30 days of receiving notice of their creation or registration. All domestic and foreign companies created or registered before January 1, 2024, must file their initial report no later than January 1, 2025.
Beneficial ownership interests of the reporting companies must be disclosed in the initial report, and in the case of reporting companies created or registered on or after January 1, 2024, certain information about the company is required (e.g., name, trade names, DBA names, the street address of principal business, and the TIN for foreign businesses).
BOI includes full legal name, date of birth, current address, a unique identifying number from unexpired passports, state ID requirements, or driver’s license and an image of that document.
Reporting companies are required to report the following: legal name, any trade names (d/b/a), the current address of its primary place of business, the jurisdiction where it was formed, and the taxpayer identification number.
If the information changes, the company must file an updated report within 30 days of the change. If the report is inaccurate, a corrected report must be filed within 30 days of the mistake being discovered.
Currently there is no fee required in connection with filing the BOI Report.
BOI Information
A “beneficial owner” is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company. Substantial control includes senior officers and the individuals who can appoint and remove senior officers, but generally includes anyone who directs, determines, or has substantial influence over important decisions made by the company. Also, for companies created or registered on or after January 1, 2023, “company applicants” must disclose their information. Company applicants include individuals who first created or registered the company with the Secretary of State or directs that filing. There is a maximum of two company applicants required to be listed.
“Ownership interests” includes simple shares of stock as well as more complex instruments.
Beneficial owners, company applicants, and reporting companies can apply for a FinCEN identifier. This isn’t required but is supposed to help ease the administrative burden of filing. The application for this identifier includes the required information noted above, and therefore, the individual can simply provide this number to the various companies in which the individual has a disclosure requirement in lieu of completing separate reports.
Penalties are imposed for persons who willfully fail to complete this information. Such persons are liable for $500 per day the violation continues or $10,000 for a criminal violation. Person includes any individual, reporting company, or “other entity.”
How Is the BOI Report Filed?
FinCEN is currently working on its reporting system which it has named the Beneficial Ownership Secure System (BOSS). Due to the rigorous security and confidentiality requirements imposed by the CTA, FinCEN has its hands full developing a sophisticated technological infrastructure to handle these requirements. The planned date for the new system to begin accepting BOI reports is January 1, 2024, so we anticipate the system to be unveiled soon.
On September 18, 2023, FinCEN published the Small Entity Compliance Guide which is the most comprehensive guidance to date on compliance obligations.
We will continue monitoring developments to help you get ready for this significant compliance initiative.
Ketel Thorstenson, LLP’s role related to the CTA will be limited to providing education and awareness about the new reporting requirements.The CTA does not involve either the Treasury Department or the IRS, and no CTA disclosures are required with any federal or state tax filings. Consequently, Ketel Thorstenson, LLP cannot be responsible for any client FinCEN filings and no Ketel Thorstenson, LLP person should provide any legal advice (or assist with any filings) for a client regarding the CTA. If a client does ask for assistance, Ketel Thorstenson, LLP recommends that a client look towards their legal counsel for further assistance.
