The Corporate Transparency Act takes effect Monday, January 1, 2024. What are the primary goals of the Corporate Transparency Act? Who is required to comply with the information disclosures within this important new law and what are the steps to compliance?

The Corporate Transparency Act (CTA) was passed as part of the National Defense Authorization Act for Fiscal Year 2021. The legislation was initially vetoed by then-President Trump but was overridden by Congress and enacted into law. Electronic filing of required forms begins January 1, 2024. The failure to comply with CTA reporting requirements and/or any effort to evade or file false or incomplete information carries both civil and criminal penalties including up to two years of imprisonment and $10,000 in fines. These penalties also apply to those who fail to update inaccurate or changed information due to a qualifying event or death.

The Primary Goals of the CTA

The goal of the CTA is to provide US law enforcement with transparency and insight into the ownership of specific corporate entities as a tool for preventing money laundering and other criminal activity through business entities while increasing the ability to detect, prevent, and ultimately punish acts of terrorism.

In essence, the CTA requires specific corporate entities within the US, as well as those who access US markets, to disclose those individuals who possess an ownership interest in each entity. Any existing entity that has been formed or registered in the United States must confirm its qualification for an exemption from CTA reporting requirements, or complete and submit the required “Beneficial Ownership Information (BOI)” report to the Financial Crimes Enforcement Network (FinCEN).

The final “Access Rule” was issued by the FinCEN on December 21, 2023, defining the specific requirements with which the “Beneficial Ownership Information” (BOI) of a qualifying entity must be disclosed and/or protected. FinCEN noted, “The Access Rule reflects FinCEN’s commitment to creating a highly useful database for authorized BOI recipients while protecting this sensitive information from unauthorized disclosure.”

It is time to begin to organize the information required to address CTA reporting requirements for qualifying entities and prepare electronic submissions through FinCEN electronic filing(s). There is no cost to file the required BOI disclosure, and FinCEN has provided a specific page on their website for BOI reporting. This page clearly states: “Please note: FinCEN cannot accept (BOI) reports before January 1, 2024.”

Who Is Required to File?

The Small Business Administration recently disclosed the fact that more than 27 million small business entities had no employees. The Corporate Transparency Act takes effect Monday, January 1, 2024, requiring owners of these domestic entities and foreign entities who conduct business within the US and/or its territories to disclose individual ownership interests.

The requirement to file includes corporations, trusts, limited partnerships, Limited Liability Partnerships (LLPs) and/or any other type of entity created through any type of filing with a Secretary of State (or similar office) within any US state or Indian tribe. Reporting requirements under the CTA extend to foreign entities (businesses formed under the laws of a foreign nation) that have registered to conduct business in any state or tribal jurisdiction.

It is important to note that the Corporate Transparency Act does not apply to any entity with more than 20 full time employees and a physical office in the United States and has more than $5 million in sales or gross receipts as documented in federal informational or tax returns filed in the US for the previous year. These penalties not only apply to individuals required to file, but to those who “caused the failure or served as a senior officer (of the qualifying entity) at the time of the failure.”

There are many exemptions such as some governmental authorities, insurance companies, public utilities, registered accounting firms, banking interests including credit unions and savings and loans, specific types of issuers of securities as well as brokers or dealers, tax-exempt entities and those entities that assist charities, inactive entities or subsidiaries of specific exempt entities.

What Information Must Be Disclosed?

When The Corporate Transparency Act takes effect Monday, January 1, 2024, those with an existing beneficial ownership interest in a qualifying entity must file initial reports within one year. Qualifying entities created on or after January 1, 2024 were originally given 30 days to file the information disclosure after receipt of notification regarding creation and/or registration. FinCEN has approved an extension of the timeframe from 30 days to 90 days for qualifying entities created in calendar year 2024. This requirement resets to 30 days January 1, 2025.

BOIs have 30 days to update CTA reports if there is any change in qualifying ownership, such as through the acquisition of the interest, the sale or merger of a qualifying entity, the death of a BOI, or if one simply becomes aware that previously filed CTA reports are inaccurate for any reason.

Qualifying business entities must file a “Beneficial Ownership Information (BOI) Report” with FinCEN. The informational disclosure will include but is not limited to the company name, address, Federal tax ID number and the entity’s “beneficial owners” and “applicants.” The information to be disclosed for these individuals includes their full legal name, address, date of birth and the specific identifying number from either a passport or driver’s license as well as a digital photocopy of the associated document.

A “beneficial owner” is an individual who directly or indirectly either exercises substantial control over the entity (such as a corporate officer) or owns/controls more than 25% of the ownership interest in the qualifying entity. An “applicant” (a maximum of two individuals) is either the person(s) directly and primarily responsible for directing the BOI report and its filing and/or the person who actually files the BOI report with FinCEN.

The Corporate Transparency Act takes effect Monday, January 1, 2024. Are you a “beneficial owner” or “applicant” or do you own an interest in a qualifying entity? Are you concerned about meeting these important new federal requirements? Are you required to file an electronic BOI Report with FinCEN? If so, it is time to increase your awareness of associated reporting responsibilities and how to come into compliance.