The Corporate Transparency Act (CTA) of 2021 was enacted to increase transparency in business ownership and prevent illegal activities like money laundering and tax evasion. Starting January 1, 2024, entities must report beneficial ownership information (BOI) to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). Non-compliance with the CTA can lead to severe penalties, including fines and imprisonment.
Who is a Beneficial Owner?
FinCEN defines a beneficial owner as an individual who directly or indirectly holds substantial control over a reporting company or owns at least 25% of its ownership interests. Substantial control is determined if the person has a senior officer position, such as president, CEO, CFO, COO, or general counsel, or if they can appoint or remove officers or directors with a majority interest in the company. Additionally, someone who plays a significant role in decision-making for the company or meets the criteria outlined in FinCEN’s Small Entity Compliance Guide.
Entities Required to File and Deadlines
Both domestic and foreign entities registered with a state or tribal authority must submit a BOI report. Deadlines are as follows:
- Entities formed or registered before January 1, 2024, must file by January 1, 2025.
- Entities formed in 2024 must file within 90 days of formation.
- Entities formed after December 31, 2024, have 30 days to file after formation.
Entities such as limited liability companies (LLCs), corporations, business trusts, limited partnerships, and others must meet these requirements.
Filing Requirements
BOI reports must include details like the beneficial owner’s name, birth date, home address, and identification number from a state or tribal-issued ID. The company’s legal name, DBA, address, formation jurisdiction, and tax ID number must also be provided. Any changes to ownership or company details must be reported within 30 days.
Entities created or registered on or after January 1, 2024, must disclose up to two company applicants (individuals who apply to form a corporation, LLC, or similar entity).
This filing is considered the preparation of a legal document, and a CPA is not authorized to perform such an act. Therefore, we can’t prepare the filing on your behalf. You will need to prepare the filing yourself or consult your attorney.
Exemptions and Inactive Companies
Certain entities are exempt from filing, including publicly traded companies, specific non-profits, and large operating companies that meet specific criteria. To qualify for exemption, large operating companies must satisfy three conditions. First, they must employ more than 20 full-time employees who work an average of at least 30 hours per week in the U.S. FinCEN requires each LLC, corporation, or entity to count employees individually, excluding those from affiliates, meaning parent companies cannot count subsidiary employees and vice versa. Second, the company must operate from a U.S.-based location that is leased or owned and physically distinct from the business location of any unaffiliated entity. Finally, the company must have filed a U.S. federal tax return for the previous year, reporting $5 million or more in gross receipts or sales, excluding foreign sources.
For an entity to be classified as inactive, it must meet all six criteria: it must have existed on or before January 1, 2020, not be engaged in any active business, and not be owned by a foreign person, either directly or indirectly. Additionally, there must have been no change in ownership within the past 12 months, and the entity must not have sent or received more than $1,000 through any financial account in which it or an affiliate had an interest during the same period. Finally, the entity must not hold any assets, either in the U.S. or abroad, including ownership interests in any other corporation, LLC, or similar entity.
Penalties for Non-Compliance
Failure to file a BOI report can result in fines of up to $591 per day, capped at $10,000, and up to two years in prison. Filing false information also carries severe penalties. However, companies can avoid penalties by correcting mistakes or omissions within 90 days of the original report’s deadline.
BOI reports can be submitted through FinCEN’s website. Contact your LRS partner or Sal Schibell, CPA, CFP®, MBA, MS Taxation – Tax Partner at(732) 539-7328 or salschibell@lrscpa.com for more information on filing your BOI report.