What is the CTA and related BOI requirement? Beginning January 1, 2024, many businesses will be required to comply with the Corporate Transparency Act (“CTA”). The CTA was enacted into law as part of the National Defense Act on January 1, 2021. The CTA requires the disclosure of the beneficial ownership information, commonly referred to as “BOI”, of certain companies, their owners and people who effectively control them. These reporting requirements were created by Congress in an effort to fight tax fraud, money laundering, the financing of terrorism and other illegal activity. The subsequent content originates from an experienced business lawyer.
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Please note that these reporting requirements are not administered by the Internal Revenue Service (“IRS”) but by the Financial Crimes Enforcement Network (“FinCEN”). FinCEN is an agency of the Department of Treasury. Accordingly, the information provided herein is informational only and should be reviewed with a business lawyer to ensure accurate compliance with the new requirements.
What businesses are required to report?
The new BOI reporting requirements only apply to certain companies that meet specific criteria. In general, the following may be subject to the reporting requirements under the CTA.
- Domestic reporting companies-corporations, LLCs, and any other entities created by the filing of a document with a secretary of state or similar office in the US.
- Foreign reporting companies-entities (including corporations and LLCs) formed under the law of a foreign country that are registered to do business in the US by filing a document with a secretary of state or similar office in the US.
Note: There are 23 types of entities that are exempt. Among those listed, and likely the most common exempt entity, are large operating companies. Large operating companies are defined by the Act as having the following characteristics: more than 20 U.S. based full-time employees, reported gross revenue over $5M on their prior year tax return and a physical office in the U.S. Unless your business has more than 20 employees and $5M in revenue, you are likely required to report.
We recommend that you consult with an business lawyer to determine if your company meets the reporting company criteria discussed above and is required to file a BOI report with FinCEN.
When must companies file the report?
When a reporting company must file a BOI report is dependent upon when the company was registered with a secretary of state or similar agency.
- Businesses that were created or registered to do business prior to January 1, 2024, have until January 1, 2025, to file their initial BOI report.
- Businesses that were created or registered to do business on or after January 1, 2024, and before January 1, 2025, must file the initial BOI report within 90 calendar days of a company’s 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).
- If the company is created/registered on or after January 1, 2025, it must file its initial BOI report within 30 calendar days of the company’s 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 that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days.
Where is the BOI report filed?
The CTA falls under the Bank Secrecy Act of 1970, which is a set of laws and regulations to fight money laundering. As mentioned above, the BOI reporting is not filed with the IRS. Instead, reports are filed with FinCEN.
More detailed information regarding the definition of beneficial owners and the required reporting can be found by following the link below to FinCEN’s Small Entity Compliance Guide.
Please note that non-compliance can result in possible fines ($500 per day up to $10,000 and criminal penalties) and reporting should not be overlooked.
Who Should Complete/Prepare the Filing?
Your business lawyer can help you decide whether authorized company personnel or legal counsel should complete the filing. Contact Moseman Law Office, an experienced business lawyer to schedule a consultation.