The Corporate Transparency Act (CTA) goes into effect on January 1, 2024 and will impact millions of small businesses. The primary objective of the CTA is to provide transparency regarding undisclosed ownership through corporate structures by requiring companies to disclose the individuals or entities exercising control. Many have never heard of the Beneficial Ownership Information (BOI) report required by the CTA and may be surprised to learn that non-compliance can result in daily fines and even jail time.
What is it?
The purpose of the Corporate Transparency Act (CTA) is to prevent illegal activities like money laundering, fraud, and tax evasion by making it harder to hide the true owners of businesses. The CTA is not a part of the tax code. It is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. The law reveals companies with anonymous or hidden ownership structures by requiring businesses to submit compliance reporting.
Who does this affect? To understand Beneficial Ownership Information (BOI) reporting, we need to identify the companies that are required to file. These include all entities that are registered with a secretary of state (SOS) including Corporations and Limited Liability Companies (LLCs).
Who is a Beneficial Owner? These are individuals who directly or indirectly own or control a reporting entity, and include individuals with substantial control or a minimum ownership threshold of 25%. This includes senior officers, individuals with the authority to appoint or remove officers, directors, important decision-makers, or those with other forms of substantial control.
What are the penalties? BOI reporting comes with strict penalties for non-compliance including criminal consequences such as imprisonment and/or fines of up to $10,000. Civil penalties may also apply, with daily fines of $500, up to a maximum of $10,000. Notably, senior officers of a reporting company can also be held accountable for failing to file a required BOI report.
Tax Manager, Davy Miller, gives us a quick overview of the FinCEN BOI Reporting Requirements.
When does this go into effect?
The effective date these rules go into effect is January 1, 2024. Here is some additional information to help you prepare for how to report and register:
What is the reporting deadline? Companies created before January 1, 2024, will have one year – until January 1, 2025 – to file their initial reports, while companies created or registered after January 1, 2024 will have 30 days after receiving notice of their creation or registration with the State to file their initial reports.
What information is required? When filing BOI reports with FinCEN, the rule requires that a company identify itself and report the following four pieces of information about each of its beneficial owners: Name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document).
How do I file? The specific process for reporting beneficial ownership information will be outlined by the U.S. Department of the Treasury and FinCEN. They are responsible for implementing and enforcing the CTA. You will likely be required to submit this information electronically through a designated platform.
Update as of 11.29.2023
FinCEN has extended the filing deadline for new entities created in 2024 from 30 days to 90 days. The filing deadline for entities existing before 2024, and entities created in 2025 and beyond, remaining the same.
Filing Deadlines
Created before 2024 = January 1, 2025
Created in 2024 = 90 days
Created in 2025 or later = 30 days
What scams should I look out for?
Scammers often take advantage of new regulations or government initiatives to target individuals and businesses with fraudulent schemes or as imposter government officials. While the Corporate Transparency Act (CTA) itself is a legitimate law designed to improve transparency and prevent financial crimes, you should be aware of potential scams.
Phishing Emails: Be cautious of unsolicited emails that ask for your sensitive information – such as Social Security numbers, tax IDs, or financial data – claiming it’s required for CTA compliance. Verify the legitimacy of such requests with official sources or a reliable CPA. According to FinCEN, there have already been attempts to scam businesses regarding CTA.
Fake Registration Services: Shady companies may offer services to “help you” register for the CTA, but have no intention of providing legitimate assistance. They may charge excessive fees or fail to deliver the promised services. Make sure to do your due diligence before hiring a professional.
Fake Websites: Scammers may set up fake websites that resemble official government sites to collect your personal and financial information. Always ensure you are visiting a legitimate government website before providing any sensitive data. Keep in mind that official government websites will end in ‘.gov’.
The Smartest Business Owners are Informed Business Owners
Having a relationship with a CPA and an attorney is a must for small businesses. Compliance filings are a big part of business ownership and trusted advisors on your team will serve as valuable partners. With their assistance, you have more time to run your business than worry about compliance.
Walker Glantz can help you stay ahead of the game by understanding the reporting process, deadlines, and the penalties for non-compliance. Learn more about this new filing requirement at https://www.fincen.gov/boi.