The Deadline for Corporate Transparency Act Reporting is Fast Approaching – Have You Filed? by Joel G. Young, JD, LLM
Posted on August 23, 2024
by
Joel Young
The Corporate Transparency Act (CTA)introduced a new requirement for existing corporations, LLCs, and some partnerships and business trusts to file by January 1, 2025, beneficial ownership information reports (BOIR) disclosing the identities of the individuals behind those entities. For companies established after January 1, 2024, an initial BOIR must be filed within 90 days of its formation. As we enter the final quarter of 2024, time is of the essence for millions of companies to come into CTA compliance.
What is the CTA?
Congress introduced the Corporate Transparency Act in 2021 to create a repository of information on the beneficial owners of businesses that could be accessible by law enforcement. Under the CTA, reporting companies must provide the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) with detailed statements containing all their domestic and foreign beneficial owners’ names, addresses and other personal identifying information.
The law defines a reporting company as any domestic entity formed via a filing with a U.S. state (i.e., a corporation, LLC and some partnerships) or a foreign entity registered to do business in a state. Beneficial owners are the individuals who, directly or indirectly, have substantial control over a reporting company or own 25 percent or more of the reporting company. These individuals may include senior officers, persons with the power to appoint or remove senior officers, or persons who can direct or substantially influence important company decisions, such as the disposal of company assets, reorganizations or dissolutions, compensation of senior officers and spending on major expenditures. For companies held in trust, beneficial owners may also include settlors, beneficiaries and trustees.
What are the Reporting Requirements?
A reporting company must provide FinCEN with its legal name and any of its d/b/a names, its employer identification number (EIN), and its physical business address and jurisdiction. They must also report their beneficial owners’ legal names, dates of birth, residential addresses, passport numbers and photographic copies of their state-issued identification (i.e., driver’s license).
Reporting companies also have an additional requirement to submit this information to a company applicant or the person who files the documents creating the reporting company and/or is responsible for directing such filings to be made.
Companies with existing operations have until Jan. 1, 2025, to file an initial BOIR, while those formed after Jan. 1, 2024, must do so within 90 calendar days after formation or registering to do business. After Jan. 1, 2025, the initial BOIR filing deadline for newly formed companies will be reduced to 30 days. Anytime a company changes its beneficial owners or other reported information, it will have 30 days to file an updated BOIR with FinCEN.
Can I Qualify for a Reporting Exemption?
There are 23 types of entities that are exempt from the definition of a reporting company. They include financial services companies already required to register with a regulatory body, such as banks registered with the FDIC, venture capital fund advisers registered with the SEC, and accounting firms regulated by the PCAOB.
Also exempt from CTA reporting are large operating companies with a physical presence in the U.S., at least 20 full-time U.S. employees, and more than $5 million in gross receipts or sales from U.S. sources as reported on their prior-year tax returns. Subsidiary companies controlled or wholly owned, directly or indirectly, by another exempt company may also be excluded from CTA reporting responsibilities, as are certain inactive entities that existed before January 1, 2020, provided they are not foreign-owned, they hold no assets, they do not engage in business activities, and they have not had any ownership changes or significant asset transfers in the prior 12 months.
What are the Penalties for Noncompliance?
The willful filing of an inaccurate BOIR or failure to file can result in civil penalties of $591 per day for each day the violation continues unremedied, as well as criminal penalties that can include a $10,000 fine, up to two years in prison, or both. Both individuals and corporate entities can be held liable for these penalties, including any individual who causes the failure or a senior officer of the company at the time of the failure to file.
How Can I Comply with the CTA?
The deadline to file an initial BOIR for a company in existence before 2024 is rapidly approaching. According to Treasury Secretary Janet Yellen, only 2.7 million of the estimated 32.6 million companies that must file a BOIR by the end of 2024 have already done so.
Given the expansive reach of the CTA, both in terms of the number of companies required to report and the sensitivity of the information they must disclose, it is imperative that applicable entities reach out to their accountants and advisors as soon as possible to determine their reporting obligations and file any required BOIRs.
About the Author: Joel G. Young, JD, LLM, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors and CPAs, where he provides tax consulting, income and estate tax planning and compliance services for high-net-worth families and closely held businesses with international operations. He can be reached at the firm’s Boca Raton, Fla., office at (561) 361-2000 or info@bpbcpa.com.
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