We want to make you aware of an important new reporting requirement that may affect our clients who own or control businesses. The Corporate Transparency Act (CTA) is a complex and broad piece of legislation that requires certain companies to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The deadline for filing a report is December 31st, 2024.
Although we cannot offer legal advice on the CTA, we will outline the reporting requirements and provide suggestions to help maintain compliance. The general advice from legal professionals is to submit a report if there is any uncertainty.
There is no cost to report, but the penalties are severe, including fines and possible imprisonment. Despite ongoing legal challenges to the constitutionality of these requirements, our sources advise preparing for implementation before the end of the year.
The Corporate Transparency Act, enacted in 2021, aims to prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activities by creating a database of who ultimately owns or controls companies operating in the United States. This increased transparency is intended to make it harder for bad actors to hide behind shell companies or complex ownership structures.
Under the CTA, many companies will need to file a report with FinCEN that includes information about:
The BOI reporting requirements apply to what the CTA calls "reporting companies." In general, this includes:
Corporations
Limited Liability Companies (LLCs)
Other entities created by filing documents with a secretary of state or similar office (for example, partnerships)
Foreign companies registered to do business in the United States
However, there are 23 types of entities that are exempt from reporting, including public companies, banks, credit unions, insurance companies, tax-exempt organizations, and large operating companies.
Large operating companies with more than 20 full-time employees and over $5 million in gross receipts or sales that have a physical presence in the U.S. are exempt from BOI reporting requirements.
It's important to note that the reporting requirements apply to many small businesses, including single-member LLCs and companies with no employees. Even if your business is currently inactive, you may still need to file if the company has not been formally dissolved.
While trusts themselves are not reporting companies, they may need to report if they own 25% or more of a reporting company or exercise substantial control over one. The rules for trusts can be complex, involving trustees, beneficiaries, and other parties. We strongly advise clients with complicated trusts to consult with an attorney to determine their reporting obligations.
The deadline for filing your initial BOI report depends on when your company was formed:
Companies formed before January 1, 2024: Must file by January 1, 2025
Companies formed in 2024: Must file within 90 days of formation
Companies formed in 2025 or later: Must file within 30 days of formation
After the initial report, companies must file updates within 30 days of any changes to previously reported information.
BOI reports must include the following information:
Full legal name
Any trade names or "doing business as" (DBA) names
Current street address of the principal place of business
State or tribal jurisdiction of formation
Taxpayer Identification Number (TIN)
Full legal name
Date of birth
Current residential address
Unique identifying number from an acceptable identification document (e.g., passport or driver's license)
An image of the identification document
A beneficial owner is generally defined as any individual who:
To simplify the reporting process and protect personal information, individuals can apply for a FinCEN identifier. This unique number can be provided to reporting companies instead of personal information. We strongly recommend that beneficial owners obtain a FinCEN identifier to streamline the reporting process and enhance privacy protection.
I used my login.gov credentials to create a FinCEN ID. It was fairly painless. The website for a FinCEN ID is https://fincenid.fincen.gov/landing
BOI reports must be filed electronically through FinCEN's secure filing system. The filing process is designed to be straightforward, and there is no fee to submit a report. Be sure to create a FinCEN identification before going to the BOI reporting portal. Having a FinCEN ID simplifies the data entry process, but you need to create the ID before starting the BOI report.
FinCEN also provides a detailed Small Entity Compliance guide at this address https://www.fincen.gov/boi/small-entity-compliance-guide
The guide is a useful reference if you have questions about the terminology used in the reporting process.
The penalties for failing to report or providing false information can be severe:
Civil penalties of up to $591 per day (as of 2024, adjusted annually for inflation)
Criminal penalties including fines up to $10,000 and imprisonment for up to two years
Given these significant penalties, it's crucial that business owners take this new reporting requirement seriously and ensure timely compliance. If you're uncertain whether an entity needs to file, it's better to file just in case.
If you own or control a business, we recommend taking the following steps:
The new BOI reporting requirements represent a significant change for many small and medium-sized businesses. While the goal of increased transparency is laudable, it does create new compliance obligations for business owners. By staying informed and taking proactive steps to prepare, you can ensure your business remains compliant.
Remember, the information provided here is general in nature and you should seek legal counsel for specific questions.
If you are interested in how J.E. Simmons and Company helps our business owner clients, please book a call below.