Navigating the Corporate Transparency Act
As the clock ticks down to January 1, 2024, small business owners find themselves at the crossroads of a significant regulatory shift — the implementation of the Corporate Transparency Act (CTA). Enacted to bolster transparency and combat illicit activities such as money laundering and tax fraud, the CTA brings about a new reporting requirement that mandates small businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). As the deadline for compliance creeps closer, Dunlap Law has the answers to our clients’ most common questions:
What exactly is the Corporate Transparency Act?
The Corporate Transparency Act is primarily an anti-money laundering law aimed at unveiling the ownership of corporations, LLCs, and similar entities to deter illegal activities. With severe penalties for non-compliance, it is crucial for small business owners to grasp the key aspects of BOI reporting.
Am I required to file a BOI report?
Every corporation, LLC, or similar entity created by registration under the laws of a state or Native American tribe is required to file a BOI report unless exempt. Exemptions include publicly traded companies, financial institutions, tax exempt nonprofit organizations, and entities subject to substantial federal or state regulation. Large operating companies meeting specific criteria are also exempt. Note that if your nonprofit organization has NOT qualified for tax exemption under one of the IRS 501(c) categories, then your organization must file a BOI report. Generally, sole proprietorships and joint ventures are not required to report because they are not created by registration with a state or Native American tribe.
What information do I have to provide?
Domestic reporting companies must provide comprehensive information about the company and its beneficial owners, including legal and trade names, addresses, and unique identifying numbers such as those from a passport or U.S. driver’s license. Beneficial owners are individuals with substantial control over the company or ownership of at least 25% of its interests. We can advise you on who qualifies as a beneficial owner.
When and how do I file?
No one can file a report until FinCEN begins accepting them on January 1, 2024. Domestic reporting companies created before January 1, 2024, must file their initial BOI reports no later than January 1, 2025. Companies created after January 1, 2024, and before January 1, 2025, have 90 calendar days from formation to file their initial BOI reports. Reporting companies created on or after January 1, 2025, must file within 30 days of formation. Any changes to reported information must be updated within 30 days of the change. All reports, updates, and corrections are to be filed electronically on FinCEN’s beneficial ownership information webpage.
Who has access to the information on my report?
FinCEN can disclose BOI to select entities, including federal agencies, state law enforcement with a court order, and financial institutions with the company’s consent.
What if I need to make changes to the information on my report?
While you are not required to submit your report annually, you must file an updated report within 30 calendar days of any changes to the information you provided, including a change in who the beneficial owners are or if your company becomes eligible for exemption. If you need to correct an error, you must do so within 30 days of discovering the error.
What are the consequences of failing to report BOI?
Failing to comply with the CTA can result in civil and criminal penalties, which include civil penalties of $500.00 per day of violation, large criminal fines, and even prison for willful failure to report or filing of erroneous reports.
Looking Ahead to the New Norm:
Lastly, here are several considerations for small business owners and financial professionals for navigating the new normal:
- Preparing for BOI Reporting: Small business owners should determine their reporting status, gather required information, and implement a system to track and update information. It’s crucial to stay proactive and ensure compliance to avoid penalties.
- Expanding Opportunities for Accounting Professionals: With the CTA becoming effective on January 1, 2024, there is an increasing demand for understanding its implications. Accounting professionals have a unique opportunity to enhance their service offerings, providing valuable insights and assistance in navigating the complexities of BOI reporting.
- Implementing CTA Compliance: As the deadline draws near, businesses should take a proactive approach, gathering documentation and preparing checklists for efficient compliance. Companies with missing paperwork should work diligently to cure documentation gaps.
The Corporate Transparency Act brings forth a new age of accountability for small businesses. By understanding its intricacies and proactively preparing for compliance, businesses can navigate the regulatory landscape effectively, ensuring a smooth transition into the era of increased transparency and financial accountability.
Be sure to read our second CTA blog to take a deep dive into who qualifies as a beneficial owner.
If you still have questions or would like our help completing this filing, book a free consult today.
FinCEN’s FAQ https://www.fincen.gov/boi-faqs