CORPORATE TRANSPARENCY ACT AND BENEFICIAL OWNERSHIP INFORMATION REPORTING FOR BUSINESSES

 

For businesses, including but not limited to LLCs and corporations, assisting you with your compliance with the Corporate Transparency Act (“CTA”), including beneficial ownership information (“BOI”) reporting, is not within the scope of this engagement. You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. 

 

Below is some information for you to consider regarding the general reporting requirement. This information is meant to be general only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or another retained professional adviser.

 

Nationwide injunction halts BOI reporting for now; DOJ appeals

 

A federal district court, finding that the Corporate Transparency Act (CTA) is likely unconstitutional, issued an order on Dec. 3, 2024, prohibiting the enforcement of the CTA and the beneficial ownership information (BOI) reporting rule in the CTA’s accompanying regulations. Under this injunction, the Financial Crimes Enforcement Network (FinCEN) is barred from enforcing BOI filing requirements while the case is pending.

 

On Dec. 5, 2024, the Department of Justice (DOJ) filed a formal notice of appeal to the Fifth Circuit court, seeking a stay of the injunction and challenging the injunction that prevents FinCEN from enforcing the BOI reporting nationwide. At this time, we do not know how the Fifth Circuit court will respond. The Fifth Circuit court could just as easily narrow the scope of the injunction to the named plaintiffs or stay the entire injunction allowing FinCEN to enforce the BOI reporting. 

 

FinCEN issued an alert providing that, “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

 

The AICPA continues to advise that at a minimum to be prepared to file the BOI report if the injunction is lifted.

 

Background

 

Starting Jan. 1, 2024, a significant number of businesses are required to comply with the CTA. The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the BOI of certain entities from people who own or control a company. 

 

It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. 

 

The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the FinCEN, another agency of the Department of Treasury. 

 

What entities are required to comply with the CTA’s BOI reporting requirement?

 

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

 

Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA. 

 

Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office. 

 

Are there any exemptions from the filing requirements?

 

There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.

 

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must: 

 

a) Employ more than 20 people in the U.S. 

b) Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and 

c) Be physically present in the U.S.

 

Who is a beneficial owner?

 

Any individual who, directly or indirectly, either:

 

• Exercises “substantial control” over a reporting company, or

• Owns or controls at least 25 percent of the ownership interests of a reporting company

 

An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

 

The detailed CTA regulations define the terms "substantial control" and "ownership interest" further. 

 

When must companies file?

 

There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.

 

• New entities (created/registered in 2024) — must file within 90 days

• New entities (created/registered after Dec. 31, 2024) — must file within 30 days

• Existing entities (created/registered before Jan. 1, 2024) — must file by Jan. 1, 2025 

• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

 

What sort of information is required to be reported?

 

Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).

 

Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

 

Risk of non-compliance

 

Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $591 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit www.aicpa-cima.com/boi. And to reiterate, FinCEN has provided that reporting companies are not currently required to file BOI reports and are not subject to liability if they fail to do so while the order remains in force.

 

We shall have no liability resulting from your failure to comply with CTA. Information regarding the BOI reporting requirements can be found at https://www.fincen.gov/boi. Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection of relevant ownership information.