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Understanding Who Must File Under the Corporate Transparency Act

Discover who has to file under the Corporate Transparency Act. Learn about reporting companies, exemptions, deadlines, and penalties. Stay compliant.

Why the Corporate Transparency Act Matters

If you’re wondering who has to file under the Corporate Transparency Act, here’s what you need to know right away:

  • All corporations, LLCs, and similar entities formed in the United States.
  • Foreign companies registered to do business in the United States.
  • Some entities are exempt, such as banks, credit unions, and large operating companies.

The Corporate Transparency Act (CTA), effective from January 1, 2024, introduces vital reforms to combat money laundering, terrorist financing, and other financial crimes in the United States. Mandated by the Financial Crimes Enforcement Network (FinCEN) under the direction of the U.S. Department of Treasury, the CTA requires specific business entities to report their beneficial ownership information (BOI). This is part of a broader effort to ensure a transparent and accountable business environment.

By filing a beneficial ownership report, businesses disclose key information about individuals who hold significant control or financial interests in the entity. This helps authorities track illicit activities more efficiently and protects the financial system from misuse.

I’m Nischay Rawal, the founder of NR CPAs and Business Advisors, with over a decade of experience in financial management and regulatory compliance. My aim is to help you understand who has to file under the Corporate Transparency Act and ensure your business remains compliant effortlessly.

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What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a federal law designed to enhance transparency in business ownership. It was enacted on January 1, 2021, and goes into effect on January 1, 2024. The primary aim of the CTA is to combat illicit financial activities such as money laundering, tax fraud, and terrorism financing by requiring businesses to disclose detailed information about their beneficial owners.

Purpose

The purpose of the CTA is straightforward: to combat illicit financial activities. By making it harder for criminals to hide behind anonymous shell companies, the CTA aims to:

  • Prevent money laundering: Criminals often use shell companies to launder money. The CTA helps to unmask these entities.

  • Combat terrorism financing: Terrorist groups use complex financial networks to fund their activities. The CTA makes it easier for authorities to track and disrupt these networks.

  • Fight tax fraud: By requiring detailed ownership information, the CTA helps to prevent tax evasion schemes.

National Security

The CTA is also crucial for national security. By increasing transparency, the law aids law enforcement agencies in identifying and preventing potential threats. It provides a robust framework for tracking the flow of funds and ensuring that they are not used for harmful purposes.

Illicit Financial Activity

The law targets various forms of illicit financial activity. According to the American Bar Association, bad actors often conceal their ownership of business entities to facilitate activities such as:

  • Money laundering
  • Financing of terrorism
  • Human and drug trafficking
  • Securities fraud

Beneficial Ownership

One of the key components of the CTA is the disclosure of beneficial ownership. A beneficial owner is any individual who exercises substantial control over a company or owns at least 25% of it. This includes:

  • Direct owners: Individuals who directly own shares or have control.
  • Indirect owners: Individuals who control the company through other entities.

Transparency

The CTA aims to bring about greater transparency in the corporate world. By requiring businesses to report beneficial ownership information, the law makes it harder for illicit activities to go unnoticed. This transparency helps build trust among investors, employees, and customers.

FinCEN

The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, is responsible for collecting, storing, and protecting the beneficial ownership information. FinCEN ensures that this information is only accessible to authorized entities such as federal and state law enforcement agencies.

According to Investopedia, the information collected by FinCEN will not be publicly accessible, addressing some privacy concerns while still achieving the law’s goals.

By understanding the Corporate Transparency Act, businesses can better prepare for compliance and avoid potential penalties. Next, we’ll dive into who must file under the Corporate Transparency Act and what the specific requirements are.

Who Must File Under the Corporate Transparency Act?

The Corporate Transparency Act (CTA) requires a wide range of entities to disclose their beneficial owners to FinCEN. This includes both domestic and foreign entities, with specific exemptions for certain types of organizations. Here’s a breakdown of who must file under the CTA:

Domestic Reporting Companies

Domestic reporting companies include:

  • Corporations
  • Limited Liability Companies (LLCs)
  • Limited Liability Partnerships (LLPs)
  • Other similar entities created by filing a document with a Secretary of State or similar office under the law of a U.S. state or Indian tribe.

These entities must provide detailed information about their beneficial owners, ensuring transparency and aiding in the prevention of illicit activities.

Foreign Reporting Companies

Foreign reporting companies are:

  • Corporations, LLCs, or other entities formed under the law of a foreign country.
  • Registered to do business in the U.S. by filing a document with a Secretary of State or a similar office under the law of a U.S. state or Indian tribe.

These entities must also disclose their beneficial owners if they are conducting business in the U.S.

Exempt Entities

Not all entities are required to file under the CTA. There are 23 categories of exemptions, including:

  • Public Companies: Already subject to SEC reporting requirements.
  • Large Operating Companies: Must have more than 20 full-time employees in the U.S., over $5 million in gross receipts or sales, and a physical office in the U.S.
  • Banks and Credit Unions: Heavily regulated and already subject to stringent reporting requirements.
  • Tax-Exempt Entities: Includes 501(c) organizations like charities and churches.
  • Insurance Companies: Subject to state and federal oversight.
  • Public Utilities and Accounting Firms: Already under significant regulatory scrutiny.

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Entities like governmental authorities and certain subsidiaries of exempt entities are also not required to report. For instance, a subsidiary wholly owned by a public company would be exempt from filing.

Special Cases

Entities formed under Tribal law are required to report if they meet the definition of a reporting company and do not qualify for an exemption. However, tribal corporations formed under federal law through the Secretary of the Interior are not considered reporting companies.

By understanding these categories, businesses can determine if they need to comply with the CTA or if they qualify for an exemption.

Next, we’ll explore what information must be reported by those who are required to file under the Corporate Transparency Act.

What Information Must Be Reported?

Under the Corporate Transparency Act (CTA), companies need to report specific details about themselves, their beneficial owners, and their company applicants. Let’s break down what you need to know.

Company Information

Reporting companies must provide the following information:

  • Full Legal Name: The complete, official name of the company.
  • Trade Names: Any trade names or “doing business as” (d/b/a) names the company uses.
  • Principal Business Address: The current street address of the main business location in the U.S. For foreign companies, provide the address from which they conduct business in the U.S.
  • Jurisdiction of Formation: The state, tribal, or foreign jurisdiction where the company was formed or registered.
  • Taxpayer Identification Number (TIN): The company’s IRS TIN. If a foreign company doesn’t have a TIN, it must provide a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

Beneficial Owners

For each beneficial owner, the following details must be reported:

  • Full Legal Name: The complete name of the individual.
  • Date of Birth: The individual’s birth date.
  • Residential Address: The current residential street address.
  • Identifying Number: A unique identification number from a valid identification document, such as a U.S. passport, driver’s license, or a foreign passport.
  • Image of Identification Document: An image of the identification document used to obtain the identifying number.

A beneficial owner is anyone who directly or indirectly exercises substantial control over the company or owns at least 25% of its ownership interests.

Company Applicants

For each company applicant, the following information is required:

  • Full Legal Name: The complete name of the individual.
  • Date of Birth: The individual’s birth date.
  • Address: The applicant’s business address if they work in corporate formation (e.g., attorney or corporate formation agent). Otherwise, their residential address is required.
  • Identifying Number: A unique identification number from a valid identification document, such as a U.S. passport, driver’s license, or a foreign passport.
  • Image of Identification Document: An image of the identification document used to obtain the identifying number.

A company applicant is the person who directly files the document creating the company and the person primarily responsible for directing or controlling the filing if more than one person is involved.

FinCEN Identifier

Instead of repeatedly providing the above information, companies, beneficial owners, and company applicants can obtain a unique FinCEN identifier. This number can be reported in place of the detailed information each time a filing is made. However, any changes to the FinCEN identifier information must be updated within 30 days.

Understanding and gathering this information ensures compliance with the CTA and helps maintain transparency in business operations.

Next, we’ll discuss filing deadlines and requirements to help you stay on track.

Filing Deadlines and Requirements

When it comes to the Corporate Transparency Act (CTA), meeting filing deadlines is crucial to avoid penalties. Here’s what you need to know:

Initial Reports

Existing Companies:
If your company was created or registered before January 1, 2024, you must file your initial Beneficial Ownership Information (BOI) report by January 1, 2025. This gives existing companies a full year to comply.

New Companies:
For companies created or registered on or after January 1, 2024, the timeline is shorter. You have 90 days from the date you receive actual or public notice of your company’s creation or registration to file your initial BOI report.

Updates and Corrections

30-Day Updates:
If any information in your BOI report changes, you must file an update within 30 days of the change. This includes changes in beneficial ownership, company name, address, or any other reported detail.

Corrections:
If you discover an inaccuracy in your BOI report, you must correct it within 30 days of becoming aware of the error. Timely corrections are crucial to avoid penalties.

FinCEN BOI E-Filing System

To make the process easier, FinCEN has set up a secure online system for filing BOI reports. This system is user-friendly and designed to help companies file their reports accurately.

  • Existing Companies: File by January 1, 2025.
  • New Companies: File within 90 days of creation or registration.

If you need to update or correct information, you can do so through the same online system. The FinCEN BOI E-Filing System ensures that your data is secure and accessible only to authorized parties.

Pro Tip: Keeping track of your filing deadlines and promptly updating any changes can save you from hefty penalties.

Next, we’ll dive into the penalties for non-compliance to understand the consequences of missing these deadlines.

Penalties for Non-Compliance

Failing to comply with the Corporate Transparency Act (CTA) can lead to severe consequences. Understanding these penalties is crucial to avoid hefty fines and potential jail time.

Civil Penalties

Civil penalties for non-compliance can be substantial. The CTA specifies a fine of up to $500 per day for each day the violation continues. However, this amount is adjusted annually for inflation. As of now, the daily fine is $591.

Example: If you fail to report for 10 days, you could be fined up to $5,910.

Criminal Penalties

Non-compliance doesn’t just stop at civil fines. There are also criminal penalties for willful violations. These can include:

  • Fines: Up to $10,000.
  • Imprisonment: Up to two years.

Quote: “A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.”

Willful Non-Filing and False Filing

Penalties apply not only for failing to file but also for submitting false information. Here’s what you need to know:

  • Willful Non-Filing: If you intentionally avoid filing your BOI report, you’re subject to both civil and criminal penalties.
  • False Filing: If you knowingly submit false information, the same penalties apply.

Example: If a company knowingly submits false beneficial ownership information, responsible individuals could face both fines and imprisonment.

Penalties for Senior Officers and Others

Both individuals and corporate entities can be held liable for willful violations. This includes:

  • Senior Officers: If they cause or are involved in the failure to report.
  • Beneficial Owners and Applicants: If they refuse to provide required information.

“An individual who willfully files a false or fraudulent beneficial ownership information report on a company’s behalf may be subject to the same civil and criminal penalties as the reporting company and its senior officers.”

Safe Harbor Provision

There is a 90-day safe harbor provision. If you correct a mistake or omission within 90 days of the deadline, you may avoid penalties. This is crucial to remember if you realize an error after filing.

Example: If you discover an error in your BOI report and correct it within 90 days, you can avoid fines and other penalties.

Quote: “There does seem to be a 90-day safe harbor if somebody supplies inaccurate information but corrects the situation by filing an accurate report within that time.”

Understanding these penalties underscores the importance of filing your BOI report accurately and on time. Next, we’ll address some frequently asked questions to further clarify the BOI reporting process.

Frequently Asked Questions about the Corporate Transparency Act

Who needs to file a BOI form?

Reporting Companies: Under the Corporate Transparency Act (CTA), the term “reporting companies” includes any privately held corporation, LLC, or similar entity that is created by filing a document with a Secretary of State or similar office in the U.S. This also includes foreign entities registered to do business in the U.S.

Specific Examples:
Domestic Entities: Corporations, LLCs, and Limited Liability Partnerships (LLPs) formed in the U.S.
Foreign Entities: Entities formed under foreign laws but registered to operate in the U.S.

FinCEN’s Role: The Financial Crimes Enforcement Network (FinCEN) is responsible for collecting and storing the beneficial ownership information (BOI) from these reporting companies.

Who is exempt from CTA reporting?

There are 23 categories of exemptions under the CTA. Here are some key exemptions:

  1. Public Companies: Companies already required to file reports with the SEC.
  2. Large Operating Companies: Entities with more than 20 full-time U.S. employees, over $5 million in annual revenue, and a physical office in the U.S.
  3. Banks and Credit Unions: Financial institutions already subject to federal regulation.
  4. Tax-Exempt Entities: Organizations under section 501(c) of the Internal Revenue Code.
  5. Insurance Companies: Entities regulated by state insurance departments.
  6. Public Utilities: Companies providing essential services such as water, electricity, and telecommunications.
  7. Accounting Firms: Firms registered with the Public Company Accounting Oversight Board.

Subsidiaries: Entities fully or partially owned by an exempt entity are also exempt from reporting.

What is a beneficial owner?

A beneficial owner is anyone who:

  1. Owns or controls at least 25% of the ownership interests of a reporting company.
  2. Exercises substantial control over the company.

Substantial Control: This includes individuals who:
– Hold senior officer positions like president or CEO.
– Have authority over the appointment or removal of senior officers or directors.
– Make significant decisions about the company’s business or finances.

Example: If a person owns 25% or more of a company’s shares or has the power to make important decisions, they are considered a beneficial owner.

Note: Minors are not considered beneficial owners, but their legal guardians or trustees might have to report on their behalf.

Understanding these key points will help you determine if you need to file a BOI form and identify any potential exemptions. For more detailed information, you can visit the FinCEN website.

Conclusion

Summarizing the key points, the Corporate Transparency Act (CTA) requires many domestic and foreign entities to report beneficial ownership information. This law aims to combat money laundering and other illicit activities by increasing transparency in business operations.

The importance of compliance cannot be overstated. Failure to meet reporting requirements can result in severe penalties, including fines up to $10,000 and even imprisonment. Understanding who must file and what information needs to be reported is crucial for avoiding these penalties.

At NR CPAs and Business Advisors, we understand that navigating these new requirements can be complex and daunting. Our team of experts is here to provide personalized financial guidance and compliance assistance tailored to your specific needs. Whether you are a small business owner, a public figure, or part of a larger entity, we can help you meet all FinCEN requirements and avoid penalties.

Why Choose Us?

  • Personalized Financial Guidance: We tailor our advice to fit your unique business needs.
  • Comprehensive Compliance Assistance: From understanding the regulations to filing necessary reports, we’ve got you covered.
  • Local Expertise: Our knowledge of local regulations ensures you get relevant and effective solutions.
  • Broad Range of Services: Beyond tax preparation, we offer financial consulting, strategic planning, and more.

Don’t let compliance stress you out. Trust us to guide you through the complexities of the Corporate Transparency Act. Visit our Tax & Compliance page to learn more about how we can help.

By partnering with us, you can focus on what you do best—running your business—while we handle the compliance details.

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