The Corporate Transparency Act (CTA) was enacted into law as part of the National Defense Act in 2021. It requires disclosing the beneficial ownership information (BOI) of certain entities from people who own or control a company. The CTA is not part of the tax code, but rather the Bank Secrecy Act. As such, BOI reports are filed with the Financial Crimes Enforcement Network (FinCEN) and not the IRS.
The onerous reporting under the CTA is currently mandatory (beginning January 1, 2024) and is expected to impact over 30 million businesses. However, there are active bills in Congress to delay this reporting requirement until 2026. We anticipate action to be taken soon on these bills and will keep you updated. In the meantime, as you have likely been hearing of this new requirement, we wanted to provide some additional background. Your corporate attorney will be best positioned to analyze your business’ filing requirements and assist with the submissions. However, please feel free to reach out to us with any questions.
What entities are required to comply?
- Entities organized in the U.S. and outside the U.S., such a corporations, limited liabilities companies (LLCs) and limited partnerships (excluding entities that are not created by filing a document with a secretary of state or similar office)
- Foreign companies formed under the law of the foreign country and registered to do business in any state or tribal jurisdiction
Are there any exemptions for the filing requirements?
- Certain large operating entities are exempt from filing. To qualify for this exemption, the company must:
- Be physically present in the U.S.
- Employ more than 20 people in the U.S.
- Have reported gross revenue of over $5M on the prior year’s tax return
- Certain categories of filers are exempt, largely comprised of heavily regulated entities, for which this government reporting requirement would be duplicative.
What sort of information is required to be reported?
- Full name, trade name, address and IRS taxpayer identification number of the reporting company
- Information on the beneficial owners, including name, date of birth, address and photo ID
Who is a beneficial owner:
- An individual who exercises substantial control over the reporting companies
- An individual who owns or controls at least 25% of the ownership interests of the reporting company
What are the consequences of non-filing?
- Penalties for not complying with the BOI reporting requirements can result in steep civil and criminal penalties
- Note this is not a one-time requirement and beneficial ownership changes that occur over time must be reported within 30 days