The Corporate Transparency Act

Posted on Thursday, October 05, 2023

Update as of 12/2023: The Financial Crimes Enforcement Network (FinCEN) has decided to extend the deadline for new entities to submit their initial beneficial ownership information (BOI) reports. Entities that come into existence or register in 2024 will now be granted a 90-day period (rather than the previous 30 days) starting from their creation or registration date for filing their initial BOI reports. This extension, as stated in FinCEN's news release, has been granted to afford newly established reporting entities more time to acquaint themselves with FinCEN's guidance and educational resources and to address any queries that may arise during the process of completing their initial BOI reports.

October 2023: Congressed passed the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act of 2021, in efforts to reduce and eliminate illicit practices like corruption, money laundering, terrorist funding and tax evasion. Although the CTA was passed in 2021, its implementation was delayed providing FinCEN with time to develop regulations governing its application and to create awareness of the impending law.

Beginning on January 1, 2024, the Corporate Transparency Act will mandate standardized reporting of beneficial ownership information. Specific details concerning the beneficial owners of these entities must be furnished to the Financial Crimes Enforcement Network (FinCEN) under the Department of the Treasury.

This pertains to:

Corporations (both C and S status)
Partnerships (general and limited)
Professional Corporations
Limited Liability Entities (all forms)
Foreign Entities (Registered to operate within the United States)

FinCen estimates that the majority of companies who fall under this rule will be small businesses, single-owner LLCs and those with fewer than four beneficial owners.

Who Is A Beneficial Owner?

The CTA defines a beneficial owner of a reporting company as “any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.”

Which Entities Are Mandated to Report?

The CTA exempts the following business entities from the reporting requirements:

Entities employing more than 20 full-time employees in the United States
Declaring over $5 million in gross receipts or sales AND
Maintaining a physical presence at a US based business office
Issuers registered with the SEC
Banks, Bank holding companies, saving and loan holding companies, credit unions, financial market utility entities and money services business registered with FinCen
Insurance companies or state-licensed insurance producers
Accounting firms
Public Utilities
Certain pooled investment vehicles
Tax-exempt entities
Inactive companies

What Is The Reporting Requirement?

Should your business enterprise fall under the CTA, an obligation arises to submit a report on beneficial ownership to FinCEN. This report must include:

Complete legal name
Date of birth
Address
Identification number derived from a driver's license, passport, or other legally sanctioned document
Image displaying the document and its identifying number

The report must also include your company's legal appellation, any trade names or “dba” designations, address, jurisdiction of origination or initial registration, and its taxpayer identification number.

Once submitted, FinCEN will incorporate this data into a database accessible only to authorized government entities and financial institutions. The database will not be accessible to the general public.

These new regulations are slated to be effective as early as January 1, 2024. Failure to comply with the CTA and its reporting requirements can lead to serious ramifications, including daily penalties of up to $500, a maximum of $10,000, and a potential imprisonment of up to two years.

Individuals such as minors, nominees, intermediaries, custodians and agents acting on behalf of another individual can all be excluded. An applicant of a reporting company is typically a person who files an application to form a reporting company or registers a foreign company to do business in the United States.

When is Reporting Required?

For companies created or registered before January 1, 2024: reporting must be completed by January 1, 2025.

While the specific reporting form is not yet available, the filing will be conducted electronically through a secure system accessible on FinCEN's website. As of today, the system is in development and will be operational before the reporting deadline.

For entities established or registered after January 1, 2024: Reporting should occur immediately, within 30 calendar days of either receiving formal or public notice of establishment or upon notification from the state's secretary of establishment or registration, whichever is earlier. FinCEN has indicated that electronic reporting will commence on January 1, 2024.

Entities that come into existence or register in 2024 will now be granted a 90-day period (rather than the previous 30 days) starting from their creation or registration date for filing their initial BOI reports.

It is important to note that this extension exclusively pertains to reporting entities formed or registered in 2024. Reporting entities that emerge or register in 2025 or beyond will be subject to the original 30-day timeframe after their creation or registration to submit their initial BOI reports. For reporting entities established or registered before 2024, the BOI reporting deadline remains unaltered, and they must still fulfill their obligation to submit their initial BOI reports by January 1, 2025.

Although no alterations or revisions are anticipated before 2024, seeking consultation can ensure compliance with this significant law that will impact countless businesses and forestall potential severe penalties stemming from noncompliance.

Should you have additional questions, please contact your DWD advisor.

Contributed By: Jessica Ogle, CPA | Partner | DWD CPAs & Advisors

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.