The Corporate Transparency Act—or CTA—requires reporting companies to file reports with the Financial Crimes Enforcement Network (FinCEN). The deadline for some companies to file is fast approaching—and some might have already passed. To help companies comply, FinCEN has been rolling out guidance, including new FAQ information posted as of September 10, 2024. Here’s what you need to know.
What is the CTA?
As of January 1, 2024, many companies were required to report information to the U.S. government about who ultimately owns and controls them. This is the result of a 2021 law, the Corporate Transparency Act—or CTA—which requires reporting companies to file reports with FinCEN, the Financial Crimes Enforcement Network.
Who has to report?
Companies required to report are called reporting companies. Your company may be a reporting company and need to report information about its beneficial owners if your company is a corporation, a limited liability company (LLC), or other entity created by the filing of a document with a secretary of state or any similar office in the U.S., or a foreign company formed under the law of a foreign country that has registered to do business in the U.S. by filing of a document with a secretary of state or any similar office.
A domestic entity like a statutory trust, business trust, or foundation is a reporting company if it was created by filing a document with a secretary of state or similar office. The specifics of whether certain entity types, such as trusts, require filing a document with the secretary of state or similar office to be created or registered depend on state law.
Who does not have to report?
There are several exemptions. In fact, 23 types of entities are exempt from the reporting requirements for beneficial ownership information (BOI). These entities include publicly traded companies, nonprofits, and certain large operating companies. You can check FinCEN’s Small Entity Compliance Guide for a checklist that may help determine whether your company qualifies for an exemption.
Who is a beneficial owner?
A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests (examples include shares of equity, stock, voting rights, or any other mechanism used to establish ownership).
What constitutes substantial control?
FinCEN says that an individual can exercise substantial control over a reporting company in four different ways:
- The individual is a senior officer (examples include a president, CEO CFO
CFO
, COO, or general counsel); OR - The individual has the authority to appoint or remove officers or a majority of directors (or similar body) of the reporting company; OR
- The individual is an important decision-maker for the reporting company (meaning one who makes decisions about business, finances, and structure); OR
- The individual has any other form of substantial control over the reporting company as outlined in FinCEN’s Small Entity Compliance Guide.
What do I have to report?
The report must identify the company, including its legal name and any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names, as well as the physical address of the company (no post office boxes), jurisdiction of formation or registration, and Taxpayer Identification Number (if a foreign reporting company has not been issued a TIN, include a tax identification number issued by a foreign jurisdiction).
The report must also include four pieces of information about each of its beneficial owners: name, date of birth, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and a scanned image of the document)—that could include a driver’s license or passport.
If a company has to report a company applicant, the report will also include the company applicant’s name, date of birth, address, and an identifying number from an acceptable identification document (and a scanned image of the document), like a passport or U.S. driver’s license. If the company applicant works in corporate formation—for example, as an attorney or corporate formation agent—the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s home address.
No financial information or details about the business purpose or operation of the company are required.
What about reporting historical beneficial owners?
An initial BOI report should only include the beneficial owners at the time of filing—there’s no need to report earlier owners. However, moving forward, reporting companies should notify FinCEN of changes to beneficial owners and related BOI through updated reports. (Keep reading.)
How do I report?
You’ll file online. Click over to the FinCEN website and select “File BOIR.”
FinCEN has also prepared a video with instructions:
When do I report?
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial report. This is true even if the company was created years before 2024.
A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial report—the clock starts to run when the company receives actual notice that its creation or registration is effective or after a secretary of state or similar office provides public notice of its creation or registration, whichever is earlier.
Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from the date of actual or public notice that the company’s creation or registration is effective to file their initial reports with FinCEN.
The date of creation or registration for a reporting company is the earlier of the date on which the reporting company receives actual notice of its creation (or registration) or when a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the reporting company has been created (or registered).
Does this mean I missed a deadline?
You could have. April 1, 2024, is the first possible beneficial ownership information filing deadline for companies created or registered in 2024. That’s the first possible 90-day mark (for corporations created on January 1, 2024).
Most companies fall under the existing reporting companies deadline—those created or registered to do business in the U.S. before January 1, 2024, must file by January 1, 2025—that’s not that far away.
Do I have to report more than once?
You only have to file an initial report once. This isn’t an annual report.
However, if you have any updates or corrections to information you previously filed with FinCEN, you must submit those
changes within 30 days. Those changes could include registering a new business name, a change in beneficial owners (like a new CEO or a change in ownership interest), or any change to a beneficial owner’s name, address, or unique identifying number previously provided. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company would have to file an updated report, including an image of the new identifying document.
What if a reporting company no longer exists?
If a reporting company ceased to exist as a legal entity before January 1, 2024—meaning that it entirely completed the process of formally and irrevocably dissolving—it was never subject to the reporting requirements and is not required to report to FinCEN. That’s true for domestic and foreign companies.
However, reporting companies created or registered in 2024 must report even if they wound up their affairs, ceased conducting business, and entirely completed the process of formally and irrevocably dissolving before their initial beneficial ownership reports are due. And reporting companies created or registered in 2025 or later, no matter how quickly they stopped doing business, must also report their beneficial ownership information to FinCEN.
Anyone authorized to act on behalf of the company may file a report even after the reporting company ceases to exist. That means if a reporting company ceases to exist before the window for reporting closes, it should make arrangements to have the report submitted on its behalf, even if the requisite filing does not occur until after it ceases to exist. The report should reflect the beneficial ownership information before the reporting company ceases to exist. In other words, failing to exist isn’t an excuse for failing to report.
If a reporting company files an initial report and then ceases to exist before the window closes, there is no requirement to file an additional report with FinCEN, noting that the company has ceased to exist.
How do I know if a company is considered out of existence?
A company is not required to report its beneficial ownership information to FinCEN if it ceased to exist as a legal entity before January 1, 2024, meaning that it entirely completed the process of formally and irrevocably dissolving.
The same is true for a foreign company. For reporting purposes, a foreign reporting company ceases to be registered to do business in the United States when it entirely completes the process of formally and irrevocably withdrawing its registration(s) to do business there.
FinCEN says that to determine when a company withdraws its registration to do business, consult the law of the jurisdiction in which the company was registered. A company that is administratively suspended from conducting business—because, for example, it failed to pay a filing fee or comply with certain jurisdictional requirements—generally does not cease to be registered to conduct business unless the suspension becomes permanent.
Who is a company applicant for a reporting company?
Only reporting companies created or registered on or after January 1, 2024, must report company applicants.
A company that must report its company applicants will have only up to two individuals who could qualify as company applicants:
- The individual who directly files the document that creates or registers the company; and
- If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
Does a sole proprietorship have to report?
No, unless a sole proprietorship was created (or, if a foreign sole proprietorship, registered to do business) in the U.S. by filing a document with a secretary of state or similar office. Filing a document with a government agency to obtain an IRS employer identification number, a fictitious business name, or a professional or occupational license does not create a new entity and does not make a sole proprietorship filing such a document a reporting company.
What about S-Corporations?
Yes. A S-Corp that qualifies as a reporting company must comply with the reporting requirements. An S-Corp’s pass-through structure for tax purposes does not affect its BOI reporting obligations, nor does it qualify an S-Corp as a “tax-exempt entity” under FinCEN BOI reporting regulations.
Am I exempt if I file a report providing beneficial ownership information to a state office, financial institution, or the IRS?
No. It doesn’t matter who you’ve already filed a report with—reporting companies must report beneficial ownership information directly to FinCEN.
Will it cost me anything?
There’s no fee to file the report with FinCEN. However, if you retain a tax or legal professional to help you file, you’ll be responsible for paying those fees.
Do I need to use a tax or legal professional to report?
No. You can use anyone authorized to act on behalf of the company, including an employee, owner, or a tax or legal professional.
What happens if I don’t file a report?
You could land yourself in trouble. A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 for each day (adjusted for inflation) the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
I thought this was ruled unconstitutional?
Months after the CTA went into effect, a federal court found it unconstitutional. The ruling resulted from a lawsuit filed by the National Small Business United (also known as the National Small Business Association, or NSBA) and Isaac Winkles. On March 1, 2024, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, found the CTA unconstitutional “because it exceeds the Constitution’s limits on Congress’ power.”
However, while the ruling bars the U.S. Treasury from enforcing the CTA against the Plaintiffs, it does not enjoin enforcement against others. The government has appealed the ruling.
(Additional actions have also been filed. This could be headed to the Supreme Court—stay tuned.)
Is this everything? How can I find out more?
This is definitely not everything—and FinCEN continues to provide guidance (the latest update was on September 10, 2023). To make sure that you have the latest information, check out the BOI webpage. You can also subscribe to receive updates via email from FinCEN about BOI reporting obligations.
FinCEN has also been making information available on social media, like this post on X (formerly Twitter) about the FinCENT chatbot:
And, of course, the Forbes tax teams will continue to provide updates.
Read the full article here
