The Corporate Transparency Act (CTA) creates new reporting requirements for certain companies created or registered to do business in the United States. The CTA is a component of the Anti-Money Laundering Act of 2020, enacted to prevent money laundering, terrorist financing and other illicit activities. Although the Act was designed to capture companies engaging in these types of illicit activities, the new filing requirements include the vast majority of small businesses.

Beginning January 1, 2024, companies designated as “Reporting Companies” must file a Beneficial Ownership Information (BOI) report that discloses certain information for each “Beneficial Owner” of the company to the Financial Crimes Enforcement Network (FinCEN). The following summarizes the BOI reporting requirements and provides sources for more information.

What is a “reporting company” under the CTA?

“Reporting Companies” may include a corporation, limited liability company or other entity that is:

1. Created by filing a document with a secretary of state or any similar office under the law of a state or Indian Tribe; or
2. Formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the laws of a state or Indian Tribe.

Which entities are exempt from the definition of “reporting company”?

There are 23 types of business entities exempt from the Reporting Company definition. The vast majority of these exemptions apply to business entities in the financial/banking and insurance industries, entities which qualify as a securities/venture capital/investment company, certain accounting firms, and public utilities. The two exemptions likely to apply to many of BPM’s clients are the large operating company exemption and the tax-exempt entity exemption. The large operating company exemption generally applies if the company employs more than 20 employees on a full-time basis in the U.S., filed a federal income tax return in the U.S. demonstrating more than $5M in U.S.-sourced gross receipts for the prior year and has a physical office within the U.S. The tax-exempt entity exemption includes entities and political organizations exempt from tax under federal law.

When are BOI reports due?

• Initial reports – Reporting Companies created on or after January 1, 2024, and before January 1, 2025, will be required to file a BOI report within 90 days of creation or registration. The time period reverts to 30 days for Reporting Companies created or registered on or after January 1, 2025. Reporting Companies created prior to January 1, 2024, must file an initial BOI report by January 1, 2025.
• Updated reports – An updated report is required to be filed if there is any change with respect to required information previously submitted. This report must be filed within 30 days of the change.
• Corrected reports – If an error is discovered concerning a previously filed report, a corrected report is required to be filed within 30 days after discovering the error.

Who is a “Beneficial Owner” under the CTA?

Beneficial Owners shall include each individual who directly or indirectly either:

1. Owns or controls at least 25% of the ownership interests of such Reporting Company, or
2. Exercises “substantial control” over the Reporting Company. An individual is deemed to exercise substantial control over a Reporting Company if that individual
   1. Serves as a senior officer of the Reporting Company;
   2. Has authority over the appointment or removal of any senior officer or a majority of the board of directors;
   3. Directs, determines or has substantial influence over important decisions made by the Reporting Company; or
   4. Has any other form of substantial control over the Reporting Company.

Once the Beneficial Owners are identified, what information must be included in the BOI report?

For each Beneficial Owner, Reporting Companies must file a report that discloses:

1. Full legal name.
2. Date of birth.
3. Current residential street address.
4. A unique identifying number (i.e., non-expired passport or driver’s license).
5. The name of the issuing state or jurisdiction of the identification document.
6. An image of the document from which the unique identifying number was obtained.

Is BPM able to prepare the BOI reports?

Not at this time. Whereas accountants have the authority to interpret tax law under the Internal Revenue Code or accounting principles under GAAP, it is unclear whether that authority extends to the CTA statutes. Providing technical or interpretive advice on CTA may rise to the practice of law, a function which CPAs are prohibited from performing. Until conclusive guidance on how, or if, a non-attorney can provide CTA services without violating unauthorized practice of law statutes, we have determined that BPM cannot provide such advice.

What is a “Company Applicant,” and what information must be included in the BOI report?

The Company Applicant may be up to two individuals, including the individual that directly files the document that created the Reporting Company, and if there is more than one individual involved, the individual that is primarily responsible for directing or controlling such filing.

Reporting Companies formed after 2023 must also report the same details for the Company Applicant as is required for a Beneficial Owner.

What are the penalties for non-compliance?

Willfully providing false or fraudulent information or willfully failing to report or update beneficial ownership information may result in significant penalties. Civil penalties may include a $500 per day fine, while criminal sanctions include additional penalties and possible imprisonment for up to two years. Both civil and criminal sanctions may apply. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.

Who can assist with the preparation and filing of the BOI report?

If you need assistance preparing and filing your BOI report, we encourage you to consult with legal counsel offering expertise in this area to ensure compliance. Beginning after January 1, 2024, your company will file the BOI report forms through a secure filing system available via FinCEN’s website.

What are the states doing?

Some states have proposed legislation in this area to incorporate certain aspects of CTA and state filing thereof. Reviewing the requirements in the state applicable to the Reporting Company is recommended.

Please contact your legal advisor or visit the FinCEN website for further information on completing your BOI reports.

The following link to the FinCEN website includes resources that might be of benefit, such as the Small Entity Compliance Guide and the related FAQs:

https://www.fincen.gov/boi/small-business-resources