BOI Reporting: The Corporate Transparency Act May Impact You

By Jacqueline Bowden Gold, Esq.

If you have a LLC, corporation or partnership this article summarizes critical information about the new Corporate Transparency Act (CTA), that took effect on January 1, 2024.  The new law requires persons with such interests to file a report with the federal government and imposes significant penalties for failure to comply.

The CTA is designed to enhance transparency in the business world to combat money laundering, corruption, and other illicit financial activities.  Unfortunately, by casting such a large net, it imposes burdensome reporting requirements on the small business owner and real estate investor.  Here are the 5 key parts you need to know.

Section 1: Background and Beneficial Owners: The CTA establishes beneficial ownership reporting requirements for entities created in or registered to do business in the U.S. Businesses will need to identify and report individuals who exercise substantial control over the reporting company; or owns or controls at least 25% or more of the company’s ownership interests. Beneficial Owners also include senior officers of the reporting company; a person with authority to appoint or remove a senior officer or a majority of the board of directors; a person who directs, determines or has substantial influence over “important decisions” made by the reporting company; or a person who has any other form of substantial control over the reporting company.

Additionally, the Corporate Transparency Act establishes the Financial Crimes Enforcement Network (FinCEN) as the agency responsible for implementing and overseeing these regulations. Companies will be required to submit their beneficial ownership information (BOI) to FinCEN, which will maintain a confidential database accessible only by law enforcement and certain government agencies.

Section 2: Companies Required to Report: Under the Corporate Transparency Act, various types of companies are required to report their beneficial ownership information to FinCEN. Unless exempt, all domestic reporting Companies and foreign Reporting Companies created by the filing of a document with a secretary of state or any similar officer under the law of a state or Indian Tribe must file BOI reports. This includes:

1. Corporations: This encompasses C-corporations, S-corporations, and other corporate entities.
2. Limited Liability Companies (LLCs): All LLCs, regardless of whether they are single-member or multi-member, are subject to the reporting requirements.
3. Partnerships: Limited partnerships (general partnerships generally would not be a reporting company since it is not created by a governmental filing).
4. Foreign Reporting Company: Entities formed under the law of a foreign country and that is registered to do business in the U.S. by the filing of a document with a secretary of state or equivalent.

Section 3: Companies That Are Exempt: While the Corporate Transparency Act applies to a wide range of business entities, certain categories of companies are exempt from reporting as they are already subject to substantial federal and/or state regulation or are already required to provide their beneficial ownership information to a governmental authority:

1. Entities that:

– Employs more than 20 full-time employees in the U.S.

– Regularly conducts its business at a physical location in the U.S.

– Filed a Federal income tax or information return in the U.S. for the previous year demonstrating more than $5 million in gross receipts or sales, excluding gross receipts or sales from sources from outside the U.S.

2. Publicly Traded Companies: Has a class of securities registered under Section 12 of the Securities Exchange Act of 1934; or is required to file supplementary and periodic information under Section 15(d) of the Securities Exchange Act of 1934.
3. Entities that are: an organization described in Section 501(c) of the IRC of 1986 and exempt from tax under Section 501(a) of the Code; a political organization, as defined in Section 527(c)(1) of the IRC, that is exempt from tax under Section 527(a) of the Code; or certain charitable trusts and split interest trusts .
4. Pooled Investment Vehicles: Domestic funds meeting certain requirements.
5. Wholly owned subsidiary of an exempt entity whose ownership interests are controlled or wholly owned, directly or indirectly by one or more exempt entities other than a subsidiary of: an exempt money service business; exempt inactive entity; or an exempt entity assisting a tax-exempt entity
6. Inactive Entity: in existence on or before Jan. 1, 2020; not engaged in active business; not owned by a foreign person, whether directly or indirectly; wholly or partially; has not experienced any change in ownership in the preceding 12 months; has not sent or received any funds in an amount greater than $1000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12 months; and does not otherwise hold any kind or type of assets, whether in the US or abroad, including any ownership interest in any corporation, LLC or other similar entity.
7. Banks, Credit Unions, Bank or Savings and Loan Holding Companies
8. Nonprofit Organizations: Nonprofit entities, including 501(c)(3) organizations, are generally exempt from CTA reporting. These organizations are already subject to specific regulations related to their tax-exempt status.
9. Governmental Authorities.
10. Money Service Businesses
11. Registered Broker-Dealers
12. Securities Exchanges and Clearing Agencies. Other entities registered with the SEC under the Securities Act of 1934
13. Registered Investment Companies and Investment Advisers
14. Certain Venture Capital Fund Advisers
15. Insurance Companies
16. State-Licensed Insurance Producers
17. Certain Commodity Exchange Act Registered Entities
18. Public Utilities
19. PCAOB Registered Accounting Firms
20. Financial Market Utilities
21. Pooled Investment Vehicles Operated or Advised by a Bank Credit Union, Registered Investment Company, Registered Investment Advisor, or Certain Venture CapitalFund Advisers
22. Entities advising non-profits

It’s important for businesses to carefully assess their status and seek legal counsel if they are unsure about whether they are subject to the Corporate Transparency Act’s reporting requirements. Additionally, the CTA allows FinCEN to establish rules and regulations that may provide further clarification on reporting thresholds and exemptions, so staying updated on regulatory developments is essential for compliance.

Section 4: Deadline for Reporting:

• Companies created or registered opened after January 1^st, 2024, will have 90 days after creating or registering to report.
• Companies created or registered before January 1, 2024, must file an initial beneficial ownership information report before January 1, 2025.

FinCEN’s website has published a useful checklist of the available exemptions in its Guide at:

https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf

Section 5: Penalties for failure to Report:

If you willfully, or attempt to provide, false or fraudulent beneficial ownership information to FinCEN; or willfully fail to provide complete or updated beneficial ownership information to FinCEN, you could be imposed the following penalties:

• Civil Penalties: You could be fined $500 per violation per day for each day the violation continues or is not remedied, up to $10,000
• Criminal Fine: $10,000 imprisonment for up to 2 years or both.

The Corporate Transparency Act is poised to usher in a new era of corporate governance and financial transparency. As businesses brace themselves for its implementation, it is crucial to stay informed and be proactive. We will continue to provide updates as they become available. Businesses must have a clear understanding of the compliance requirements.

This article is intended for informational purposes only and does not cover the entirety of the Act. It is important you consult with an attorney if you have questions regarding your requirements to report. Rarick & Bowden Gold, P.A. can assist with a scheduled consultation at our hourly rates by contacting our office at (305) 556-5209.