By Ada Cartright, Tax Director
Beginning in 2024, many businesses will need to meet the requirements of the Corporate Transparency Act (CTA). Enacted on January 1, 2021, the CTA marks the most significant update to anti-money laundering rules since the U.S. Patriot Act. Its goal is to combat money laundering, terrorism financing and other illegal activities by requiring certain entities, mainly small and medium-sized businesses, to disclose Beneficial Owner Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This new reporting requirement is expected to impact around 32.6 million businesses.
With the first reporting deadline approaching, we wanted to provide clients with some general information about the new reporting rules, along with initial steps to help your organization navigate the impact of the CTA.
The CTA is not part of the tax code but rather falls under the Bank Secrecy Act—a set of federal laws focused on record-keeping and reporting certain financial transactions. Unlike tax filings, BOI reporting under the CTA will be submitted to the FinCEN, a separate agency within the Department of Treasury, rather than to the IRS.
Below are some FAQs with information to consider as the implementation period approaches. Please note that this information is general in nature and should not be applied to your specific situation without consulting competent legal counsel.
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both in the U.S. and abroad may fall under the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs), or any similar entity formed by filing documents with a secretary of state or a similar office under state or tribal law. Given the CTA’s broad definition of domestic entities, other entity types may also be subject to its reporting requirements, depending on state-specific formation practices.
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?
The CTA outlines 23 categories of exemptions, which include 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:
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
In addition, individuals may exercise control, directly or indirectly, through board representation, ownership, rights associated with financing arrangements, or control over intermediary entities that separately or collectively exercise substantial control.
CTA regulations provide a much more expansive definition of “substantial control” than in the traditional tax sense, so many companies may need to seek legal guidance to ultimately determine who are deemed beneficial owners within their organization.
What 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, a 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.
When must companies file?
There are different filing time frames depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information:
Where do I file the report?
Here is the website for filing the report: https://boiefiling.fincen.gov/fileboir
For additional information regarding the beneficial ownership reporting requirements under the CTA, visit FinCEN’s FAQs document here: https://www.fincen.gov/boi-faqs
Risk of non-compliance and additional resources
As the CTA is not a part of the tax code, the assessment and application of many of the requirements set forth in the regulations, including but not limited to the determination of beneficial ownership interest, necessitate the need for legal guidance and direction. Since we are not attorneys, Exencial Wealth Advisors is not able to provide any legal determination as to whether an exemption applies to the nature of your entity or whether legal relationships constitute beneficial ownership.
We strongly encourage you to reach out as soon as possible to legal counsel with expertise in this area to assist your organization with the steps you need to take to ensure compliance with the CTA, if applicable. Note, penalties for willfully violating the CTA’s reporting requirements include: (1) civil penalties of up to $500 per day that a violation is not remedied, (2) a criminal fine of up to $10,000, and/or (3) imprisonment of up to two years.
The below are a few firms we can recommend who have specialized knowledge in handling CTA filings:
Disclaimer: The information provided in this information is for educational purposes only and should not be considered as financial, tax, or legal advice.
Exencial Wealth Advisors is an SEC registered investment adviser. Any references to the terms “registered investment adviser” or “registered,” do not imply that Exencial or any person associated with Exencial has achieved a certain level of skill or training.