What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a federal law that creates a new reporting requirement as part of the U.S. government’s effort to combat fraud, money laundering, tax evasion and other financial crimes. The new requirement becomes effective Jan. 1, 2024.

Business owners will need to contend with very personal disclosure and reporting obligations regarding their entity and its beneficial owners. The reporting can be far-reaching and requires information from individuals who have minimal contact with the United States.

The CTA requires a beneficial ownership information (BOI) report to be filed with the Financial Crimes Enforcement Network (FinCEN) by every non-exempt entity that meets the definition of a “reporting company.” 

What is a Reporting Company?

A reporting company is any domestic company that is a corporation, limited liability company (LLC) or other entity created by filing a document with the Secretary of State or any similar office in the United States, as well as any foreign company registered to do business in any state or similar office.

Generally, family trusts and partnerships will not be considered a reporting company because they are not typically created by filing a document with the Secretary of State or any similar office. However, partnerships that have filed formation or registration documents with a U.S. state will have to file.

Is the Reporting Company Exempt From the CTA Filing Requirement?

The CTA exempts 23 different types of reporting companies from the CTA filing requirements. The most common to be exempt are large operating companies, inactive entities and tax-exempt entities.

Who is a Beneficial Owner?

Beneficial owner means any U.S. or non-U.S. individual who, directly or indirectly:

1. exercises substantial control over the entity through any contract, understanding, relationship or otherwise; or
2. owns or controls at least 25% of the ownership interests of the entity.

Who Qualifies for an Exception From the Beneficial Owner Definition?       

There are five exceptions to the definition of beneficial owner, which include:

1. Minor child
2. Nominee, custodian or agent
3. Employee
4. Inheritor
5. Creditor

When Is a Company Applicant Required To Be Reported? Who Is a Company Applicant?

A reporting company is required to report its company applicants if it is either a domestic reporting company created on or after Jan. 1, 2024, or a foreign reporting company first registered to do business in the United States on or after Jan. 1, 2024. 

Each reporting company required to report company applicants will have to identify and report at least one company applicant, and at most two. All company applicants must be individuals. There are two categories of company applicants – the direct filer and the individual who directs or controls the filing action.

What Information Is Required?

Reporting Company

• Full legal name, any trade name or DBA
• Current U.S. address of the principal place of business in the United States
• The state or jurisdiction where the entity was formed
• IRS tax identification number (TIN). If a foreign reporting company has not been issued a TIN, then report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

 Each Beneficial Owner and Company Applicant

• Full legal name, date of birth and current home or personal address
• Unique ID number and issuing jurisdiction from, and image of, one of the following non-expired documents: U.S. passport, state driver’s license or other state or local government-issued photo ID. For non-U.S. individuals, then a foreign passport.

When Is the BOI Report Due?

For existing companies formed before Jan. 1, 2024, the initial BOI report must be filed by Jan. 1, 2025. For companies formed on or after Jan. 1, 2024, the initial report must be filed within 30 days of formation. The CTA filing must be completed electronically and submitted to FinCEN. FinCEN will not accept reports before Jan. 1, 2024.

FinCEN issued a proposal to extend the deadline for filing initial BOI reports for entities created or registered to do business in the United States between Jan. 1, 2024, and Jan. 1, 2025. If adopted, the filing deadline will be extended from 30 to 90 calendar days after receiving notice of its creation or registration. 

The CTA filing is not an annual or recurring filing. However, once an initial report has been filed, entities must update their reports within 30 days of any change or correction.

Are There Penalties for Failing to Comply With the CTA?

Companies that fail to file the required reports or that file false or misleading information may be subject to civil penalties of up to $500 per day, criminal fines of up to $10,000 and/or imprisonment for up to two years. 

Resources and Additional Guidance

Here are some additional resources you can use to learn more about this reporting requirement:

• Beneficial Ownership Information Reporting | FinCEN.gov
• BOI FAQs Q&A (fincen.gov)
• BOI Small Compliance Guide (fincen.gov)

Here to Help

Contact Moore Doeren Mayhew’s tax advisors to help determine your reporting requirements and assist with filing compliance.