Ronald J. Eagar
In 2021, Congress passed the Corporate Transparency Act (CTA) creating a new Beneficial Ownership Information (BOI) reporting requirement that went into effect on Jan. 1.
The CTA is a large-scale effort by the U.S. government intended to counter money laundering, tax fraud, terrorism financing and other illegal acts by unveiling the true owners behind companies and preventing the use of shell corporations. The act mandates the reporting of BOI for certain entities and requires the disclosure of individuals who directly or indirectly control the entity.
The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) will implement the BOI reporting requirement. It estimates more than 30 million businesses will be impacted by this new compliance requirement.
Under the CTA, a beneficial owner is an individual who exercises substantial control over a reporting company or controls at least 25% of ownership interests of the company.
A reporting company, as defined by the CTA, includes a broad spectrum of entities, such as corporations, limited liability companies (LLCs) and other similar structures that are created by filing with a state or Indian Tribe.
Reporting companies fall into two categories:
- Domestic – Corporations, limited liability companies and any other entities created by the filing of a document with a secretary of state or any similar office in the U.S.
- Foreign – Entities (including corporations and limited liability companies) formed under the law of a foreign country registered to do business in the U.S. by the filing of a document with a secretary of state or similar office.
Exceptions exist for entities already subject to rigorous reporting and disclosure requirements, such as publicly traded companies and certain regulated entities, as well as large operating companies (more than 20 full-time employees and $5 million in gross sales). This means most contractors will be subject to the new CTA requirements.
Entities are required to disclose the names, dates of birth, addresses and unique identification numbers of the beneficial owners. With this information, FinCEN will establish a secure, confidential and centralized database to store reported BOI. This will enhance law enforcement and regulatory agencies' ability to access and analyze data to investigate and prevent financial crimes.
The CTA mandates reporting companies to comply with the new BOI requirements, beginning in January 2024. During the following specified time periods, entities falling under the scope of the CTA must submit accurate and up-to-date beneficial ownership information to FinCEN:
- Existing Companies – Those that are registered to do business in the U.S. before Jan. 1, 2024, will have until Jan. 1, 2025 to comply and file their BOI report.
- New Companies – Those that are registered to do business in the U.S. on or after Jan. 1, 2024, and before January 1, 2025, will have to comply within 90 calendar days (extended from 30 days as per FinCEN’s announcement on November 29, 2023) of receiving actual or public notice that the creation or registration of the reporting company is effective. Entities registered on or after Jan. 1, 2025, will continue to have 30 calendar days to file their BOI reports with FinCEN. This extension will allow companies created or registered in 2024 additional time to get a better understanding of the reporting and compliance requirements.
- Change Reports – Updated reports will be required to be filed if there are any changes in the previously reported information about the reporting company or its beneficial owners such as changes in name, address or any other identifying data including new driver’s license or passport numbers. Such updated reports must be filed within 30 days after the change.
Non-compliance with CTA requirements is subject to civil penalties up to $500 per day, criminal penalties up to $10,000 and imprisonment of up to 2 years for willful failure. There are no penalties if inaccuracies in previously filed BOI reports are corrected within 30 days of discovery.
The CTA is likely to pose a significant administrative challenge for many small businesses. It is essential for companies to implement best practices in compliance procedures.
For more information, please contact Ronald J. Eagar, CPA, CCIFP Partner at Grassi, at reagar@grassiadvisors.com or 516.336.2460.
