What You Need to Know About The Corporate Transparency Act
Effective January 1, 2024, the Corporate Transparency Act (CTA) aims to combat illicit activities by ensuring transparency in corporate ownership within the United States.
Objectives of the CTA:
The CTA targets various forms of illegal activity, including:
- Money laundering
- Financing of terrorism
- Tax fraud; and
- Other acts of foreign corruption
Impact on Businesses:
Under the CTA, companies are now required to collect and report ownership information to the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) through a Beneficial Ownership Information Report (BOIR). It's crucial to note that this reporting is separate from annual renewals with the Secretary of State or tax filings with the IRS. Failure to comply with these reporting requirements can result in significant penalties. There is no fee to file your BOIR.
Note: Your FinCEN filing is a one-time filing, and you only need to update it if something changes or if there was an error on your initial filing. You have 30 days from the date you make a change or the date you filed your BOIR with an error to update your filing to avoid fines accruing.
Here's a breakdown of the key information required to be included in the BOIR:
1. Beneficial Owner Information:
• Full legal name
• Date of birth
• Current residential or business address
• Unique identifying number from an acceptable identification document (e.g., driver's license, passport)
• A copy of the identifying document (or similar information if no document exists)
• A statement confirming the accuracy of the information provided
2. Ownership Percentage:
• The percentage of ownership or control each beneficial owner holds in the reporting company
3. Control Information:
• Explanation of the ownership or control structure of the reporting company
• Details regarding any individual exercising substantial control over the company
4. Updates and Changes:
• Any changes in the beneficial ownership structure must be promptly reported to FinCEN
• Updates should be filed within 30 days of the change or discovery of an error in the initial filing to avoid penalties
What Types of Businesses Does the CTA Affect?
The CTA affects most businesses, particularly those considered reporting companies—defined as entities with twenty or fewer employees formed by filing paperwork with the Secretary of State or equivalent authority. This includes a broad spectrum of businesses, from real estate companies and large corporations to small family-owned shops. There are some exceptions – those will be discussed later in this bulletin post.
Fines & Penalties for Noncompliance
The penalties for noncompliance are steep. Businesses that fail to report the required information or provide false or fraudulent information may be subject to a civil penalty of $591 per day for each violation. Additionally, willful fraudulent violations could lead to imprisonment for up to two years and further fines.
The following are exempt from being considered a “reporting entity”:
1. Securities reporting issuer
Any issuer of securities that is: (A) an issuer of a class of securities registered under Sec. 12 of the Securities Exchange Act of 1934, or (B) required to file supplementary and periodic information under Sec. 15(d) of the Securities Exchange Act of 1934.
2. Governmental authority
Any entity that: (A) is established under the laws of the United States, an Indian tribe, a State, or a political subdivision of a State, or under an interstate compact between two or more States, and (B) exercises governmental authority on behalf of the United States or any such Indian tribe, State, or political subdivision.
3. Bank
Any bank, as defined in: (A) Sec. 3 of the Federal Deposit Insurance Act, (B) Sec. 2(a) of the Investment Company Act of 1940, or (C) Sec. 202(a) of the Investment Advisers Act of 1940.
4. Credit union
Any Federal credit union or State credit union, as those terms are defined in Sec. 101 of the Federal Credit Union Act.
5. Depository institution holding company
Any bank holding company as defined in Sec. 2 of the Bank Holding Company Act of 1956, or any savings and loan holding company as defined in Sec. 10(a) of the Home Owners' Loan Act.
6. Money services business
Any money transmitting business registered with FinCEN under 31 U.S.C. 5330, and any money services business registered with FinCEN under 31 CFR 1022.380.
7. Broker or dealer in securities
Any broker or dealer, as those terms are defined in Sec. 3 of the Securities Exchange Act of 1934, that is registered under Sec. 15 of that Act.
8. Securities exchange or clearing agency
Any exchange or clearing agency, as those terms are defined in Sec. 3 of the Securities Exchange Act of 1934, that is registered under Secs. 6 or 17A of that Act.
9. Other Exchange Act registered entity
Any entity other than that described in exemption 1 (Securities reporting issuer), exemption 7 (Broker or dealer in securities), or exemption 8 (Securities exchange or clearing agency) that is registered with the SEC under the Securities Exchange Act of 1934.
10. Investment company or investment adviser
Any entity that is: (A) an investment company as defined in Sec. 3 of the Investment Company Act of 1940, or is an investment adviser as defined in Sec. 202 of the Investment Advisers Act of 1940, and (B) registered with the SEC under the Investment Company Act of 1940 or the Investment Advisers Act of 1940.
11. Venture capital fund adviser
Any investment adviser that: (A) is described in section 203(l) of the Investment Advisers Act of 1940, and (B) has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the SEC.
12. Insurance company
Any insurance company as defined in Sec. 2 of the Investment Company Act of 1940.
13. State-licensed insurance producer
Any entity that: (A) is an insurance producer that is authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State, and (B) has an operating presence at a physical office within the United States.
14. Commodity Exchange Act registered entity
Any entity that: (A) is a registered entity as defined in Sec. 1a of the Commodity Exchange Act, or (B) is: (1) a futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor, each as defined in Sec. 1a of the Commodity Exchange Act, or a retail foreign exchange dealer as described in Sec. 2(c)(2)(B) of the Commodity Exchange Act and (2) registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.
15. Accounting firm
Any public accounting firm registered in accordance with Sec. 102 of the Sarbanes-Oxley Act of 2002.
16. Public utility
Any entity that is a regulated public utility as defined in 26 USC 7701(a)(33)(A) that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.
17. Financial market utility
Any financial market utility designated by the Financial Stability Oversight Council under Sec. 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
18. Pooled investment vehicle
Any pooled investment vehicle that is operated or advised by a person described in exemptions 3 (bank), 4 (credit union), 7 (broker or dealer in securities), 10 (investment company or investment adviser), or 11 (venture capital fund adviser).
19. Tax-exempt entity
Any entity that is: (A) an organization that is described in Sec. 501(c) of the Internal Revenue Code of 1986 (determined without regard to Sec. 508(a) of the Code) and exempt from tax under Sec. 501(a) of the Code, except that in the case of any such organization that ceases to be described in Sec. 501(c) and exempt from tax under Sec. 501(a), such organization shall be considered to continue to be described as a tax-exempt entity for the 180-day period beginning on the date of the loss of such tax-exempt status, (B) a political organization, as defined in Sec. 527(e)(1) of the Code, that is exempt from tax under Sec. 527(a) of the Code, or (C) a trust described in paragraph (1) or (2) of Sec. 4947(a) of the Code.
20. Entity assisting a tax-exempt entity
Any entity that: (A) operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in exemption 19 above (tax-exempt entity), (B) is a United States person, (C) is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence, and (D) derives at least a majority of its funding or revenue from one or more United States persons that are United States citizens or lawfully admitted for permanent residence.
21. Large operating company
Any entity that: (A) employs more than 20 full time employees in the United States, with “full time employee in the United States” having the meaning provided in 26 CFR 54.4980H-1(a) and 54.4980H-3, except that the term “United States” as used in those sections of the CFR have the meaning provided in 31 CFR 1010.100(hhh), (B) has an operating presence at a physical office within the United States, and (C) filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity's IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles. For an entity that is part of an affiliated group of corporations within the meaning of 26 USC 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group.
22. Subsidiary of certain exempt entities
Any entity whose ownership interests are controlled or wholly owned, directly or indirectly, by one or more entities described in exemptions 1, 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 19, or 21 set forth above.
23. Inactive entity
Any entity that: (A) was in existence on or before January 1, 2020, (B) is not engaged in active business, (C) is not owned by a foreign person, whether directly or indirectly, wholly or partially, (D) has not experienced any change in ownership in the preceding twelve-month period, (E) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12 month period, and (F) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.
Will I get a reminder?
Business owners should note that there are no automatic reminders for filing BOIRs. It is the responsibility of each entity to ensure compliance with reporting deadlines.
Can you file on your own or do you need professional help?
Business owners have the option to file BOIRs themselves or seek professional assistance from CPAs or attorneys. Our office offers services to prepare and file BOIRs for a fee.
If you have any further questions about the Corporate Transparency Act or filing your Beneficial Ownership Information Report, please contact our office to schedule an appointment to discuss your individual concerns.
Need to schedule an appointment?
• Call us: 478-988-0238
• Email us: Frontdesk@moodyandassociates.org
• Send a request in the chat box below!
Related Resources:
WHERE TO FILE:
https://boiefiling.fincen.gov/
FinCEN small entity compliance guide: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf
