The Corporate Transparency Act (“CTA”) was enacted on January 1, 2024. Because the CTA is new, instructions on compliance and other updates will be evolving. We will provide clarifications and updates to our clients as we have them.
The CTA is a law that requires certain business entities, like a limited liability company (LLC), to disclose certain information about the business entity and its owners to the US Department of the Treasury’s Crimes Enforcement Network (“FinCEN”). If your business entity is considered a “reporting company,” then you will file your file a Beneficial Ownership Information (BOI) report including the following information:
- Entity’s legal name as well as any trade name
- Street address of the principal place of business
- Jurisdiction (state) where the entity was formed
- Entity’s tax identification number
- The full legal name, date of birth, current address, and a unique identification number (typically from your passport or valid state-issued identification) for each of the entity’s beneficial owners. A “beneficial owner” is someone who owns or controls 25% or more of the entity.
Does the CTA impact you?
Many business regulations apply only to large businesses, but the CTA specifically targets smaller business entities. If you own a small business, you may be subject to this act unless the business falls under one of the stated exemptions, which are primarily applicable to industries that are already heavily regulated. Your business may also be exempt from the reporting requirements if it employs more than 20 full-time employees, filed a return showing more than $5 million in gross receipts or sales, and has a physical office located within the United States.
LLCs are a common estate planning strategy and we know many of our clients have utilized this strategy, whether we created the LLC or not. The CTA specifically covers smaller business entities, like an LLC. If you have an LLC, or similar entity, as part of your estate plan, you may be required to comply with the CTA.
How do I comply with the CTA if I created my entity before January 1, 2024?
If your entity was created before January 1, 2024, you must submit your required report(s) by January 1, 2025. You should start to gather the required information for all reporting companies of which you are the beneficial owner. The government can impose civil and/or criminal penalties for non-compliance.
How do I comply with the CTA if I created my entity on or after January 1, 2024?
If your entity was created on or after January 1, 2024, you must submit your required report(s) within 90 days of the entity’s creation. You should start to gather the required information for all reporting companies of which you are the beneficial owner and calculate the 90-day deadline for your report. The government can impose civil and/or criminal penalties for non-compliance.
Where can I learn more about CTA requirements?
Visit https://www.fincen.gov/boi-faqs to learn more about the CTA requirements and Frequently Asked Questions.
Where do I file a BOI Report?
Visit https://www.fincen.gov/boi to file Beneficiary Ownership Information Reports. There is no fee for submitting your BOI report to FinCEN.
How often will I need to update my BOI Report?
Once you have made your initial BOI filing, there is an ongoing requirement to file an updated BOI if there is any change to the required information about your company or its beneficial owners in the original BOI report that your company filed. Any such updated BOI report must be filed no later than 30 days after the date of the change.
Do I have to file a BOI for my Trust?
While there may be certain types of trusts in other jurisdictions that are required to file a BOI Report, if our office helped you set up a trust, you are not required to file a BOI report for your trust.
What if my Trust is the full or partial owner of my business entity?
If your Trust is a full or partial owner of your business entity, then you will need to report that Trust’s ownership on the BOI Report for your business entity. For a trust, the following are potential beneficial owners of the trust who need to be included in the report:
- A Trustmaker who has a right to revoke or withdraw trust assets
- The Trustee;
- A beneficiary if the beneficiary is the sole permissible recipient of income and principal, has the right to demand a distribution of, or withdraw substantially all of the trust assets
What are the penalties for non-compliance?
Businesses that fail to report the required information or provide false or fraudulent information will be subject to a civil penalty of up to $500 per day during the period of noncompliance. In addition, there are criminal fines of up to $10,000 and the possibility of imprisonment for up to two years. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
From the FinCEN FAQs: “FinCEN is working hard to ensure that reporting companies are aware of their obligations to report, update, and correct beneficial ownership information. FinCEN understands this is a new requirement. If you correct a mistake or omission within 90 days of the deadline for the original report, you may avoid being penalized. However, you could face civil and criminal penalties if you disregard your beneficial ownership information reporting obligations.”
Will CFEP file my BOI Report for me?
CFEP is not currently assisting with filing BOI Reports. Due to how the new regulations are currently written, there is significant concern among attorneys and CPAs that filing such reports may create an ongoing duty to file an updated BOI report if any of the information changes. This potentially puts us in a challenging situation, as we risk being subject to significant non-compliance penalties if our clients do not inform us of any changes to the information on the BOI report. Until the regulations are clarified regarding such liability, it may be challenging to find attorneys or CPAs who are willing to assist with these filings.
There are also pending lawsuits regarding the CTA. One federal court found the CTA to be unconstitutional, but the decision currently only applies to the particular parties in the case. It is likely that this case will be appealed, which may have more far-reaching consequences. Thus, business owners and their professional advisors should monitor the changing CTA regulations.
This letter is meant to serve as a notification of this important law change that may affect your business entity. It is not required that you contact our office following receipt of this letter. While we will not file your BOI report on your behalf, if you have additional questions, after gathering the required information for your report, we are available to assist you with reviewing your entities and applicable questions on an hourly billing basis at our current billing rates. Please reach out to our office if you need assistance.