The Corporate Transparency Act Deadline Is Approaching – So Many Questions...
The Corporate Transparency Act, which went into effect in January 2024, may require your small business to report information about ownership to the U.S. Federal Government.
The Financial Crimes Enforcement Network ("FinCEN") is a bureau of the U.S. Department of the Treasury - they're responsible for collecting and enforcing the Beneficial Ownership Reporting Rule. According to their website:
January 1, 2025, is the filing deadline for most eligible businesses.
Those who fail to comply could face up to two years imprisonment and fines up to $10,000, in addition to civil penalties of up to $591 per day.
Yikes!!
Wait, come again?
First off, this article is not tax or legal advice – please consult your trusted tax or legal advisor to guide you on exactly what actions to take here, or drop us a line and we’ll connect you with a qualified advisor from our network. This is by no means an exhaustive list and the rules still seems to be changing, so we strongly urge you to seek qualified council before you take further action.
That said, here’s a quick overview we've pieced together from several government sources (links at the bottom of this article) as of the time this article was written…
What?
According to the U.S. Chamber of Commerce, the Corporate Transparency Act (“CTA”) was enacted in 2021 to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the U.S. market. Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report provides details identifying individuals who are associated with the reporting company.
Why?
The CTA was established to prevent individuals with malicious intent from hiding or benefitting from the ownership of their U.S. entities to facilitate illegal operations which, according to Congress, is a widely-used tactic that affects national security and economic integrity.
Who?
Every corporation, LLC, or other entity created by filing with a secretary of state or similar office must file, unless it qualifies for an exemption. Some entities created by foreign countries and registered to do business in the United States are also required to file. Non-profit community associations must also comply unless they are tax-exempt.
There are 23 categories of entities that are exempt. The most common exception is for large operating companies, defined as:
· Having more than 20 full-time employees in the US,
· An operating presence at a physical office in the US, and
· More than 5 million in gross receipts in the previous year.
When?
Here are the initial filing deadlines for your first Beneficial Ownership Information report ("BOI"), according to FinCEN:
If your entity was created or registered before January 1, 2024, you must file your BOI report by January 1, 2025.
Entities formed during 2024 must file their BOI reports within 90 days of formation.
Entities formed after 2024 must file their BOI report within 30 days of formation.
While the CTA does not require businesses to submit annual reports, the initial filing period may not be the only time you’ll be required to submit information2.
How?
FinCEN requires information about the company and personal information about each beneficial owner.
A beneficial owner can be someone who owns or controls at least 25% of a company or someone who has substantial control over the company. While some entities may qualify for an exemption, most will be required to file a beneficial ownership report.
Each beneficial owner must submit a unique ID, such as a passport, state ID, or driver's license, along with an image of the document.
You can read the FAQ here, then we recommend that you follow the advice of your CPA or attorney for official guidance that fits your specific circumstances.
Help!
If you’re an active client of our firm, please contact your account lead for assistance - they’ll participate in a conversation between you and your CPA or attorney to get you the guidance you need for this. Otherwise, let’s talk!
Sources:
2. https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act
