The Corporate Transparency Act (CTA) went into effect on January 1, 2024. The CTA will impact most closely held business entities, such as limited liability companies, corporations, limited partnerships, and other closely held entities, defined as ‘reporting companies’. The CTA mandates reporting companies to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury.
What is the Corporate Transparency Act?
Congress passed the Corporate Transparency Act in 2021 as part of the National Defense Act. This law aims to reduce illicit activity, such as money laundering, terrorism, tax evasion, and other financial crimes, by requiring certain businesses to report their BOI (identifying information about the individuals who directly or indirectly own or control a company). This information will not be of public record but will be available to a variety of agencies, and possibly to others in the future.
The CTA will affect virtually all small family businesses, including limited liability companies and other entities designed only to hold real estate.
Who is Required to Report Under the CTA’s BOI Reporting Requirement?
- All domestic and foreign entities that have filed formation or registration documents with a U.S. state (or Indian tribe), unless they meet one of 23 enumerated exceptions, including:
- Exempt: Large operating entities that meet all of the following criteria:
- Employ more than 20 people in the U.S.
- Had gross revenue (or sales) over $5 million on the prior year’s tax return
- Has a physical office in the U.S
- Exempt: Publicly traded companies that have registered under Section 102 of SOX.
- Even if an entity has only one owner and/or an entity is ignored for federal income tax purposes (such as a single member limited liability company), that entity must file reports with FinCEN.
- If you have any interest in a closely held entity or if you exert significant control over any such entity, even without an ownership interest (this might include any officer, director, manager, chief financial officer, or investment trustee), then you may be subject to these requirements.
When Must Companies File?
- New entities (created/registered after December 31, 2023) must file within 90 days.
- Existing entities (created/registered before January 1, 2024) must file by January 1, 2025.
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports must file within 30 days
What Information Needs to be Reported?
- Each reporting company must report the following information:
- Full legal name of the reporting company and any trade or DBA names
- Business address
- State or Tribal jurisdiction of formation or registration
- IRS TIN
- In addition, each reporting company must report the following details on its beneficial owners and, for newly created entities, its company applicant(s):
- Unique identifying number and issuing jurisdiction from an acceptable identification document (and image of such document)
What are the Taxpayer Penalties for Noncompliance with the Statute?
- Civil penalties are up to $500 per day that a violation continues
- Criminal penalties include a $10,000 fine and/or up to two years of imprisonment
The BOI reporting requirements under the CTA will be administered by FinCEN. Unlike other reporting requirements such as Foreign Bank and Financial Account (FBAR) reports, enforcement authority has not been delegated to the Internal Revenue Service. As such, there is currently some uncertainty as to whether Certified Public Accountants may provide consulting and/or preparation services in relation to this new reporting requirement without being in violation of state unauthorized practice of law statutes. No definitive guidance has been issued as of the date of this writing. Until clarification is provided regarding the uncertainty, McNair, McLemore, Middlebrooks & Co., LLC will not provide any services in relation to the BOI reporting under the CTA at this time. Given the potential complexity of these new reporting requirements, we recommend that you consult your attorney on this matter.
The information contained in this letter is based on the CTA as of the date of this letter. There could be significant changes to related regulations, laws, and guidance on the CTA. Such changes may significantly change deadlines, reporting requirements, obligations under the CTA, and otherwise make some of the information in this letter obsolete. McNair, McLemore, Middlebrooks & Co., LLC may not inform you of changes to laws, regulations, or guidance that occur after the issuance of this letter.
This letter is not intended to be comprehensive or to provide any advice, and it should not be relied upon or used as a basis for any business decisions, determining your business’ obligations, taking tax positions, or reporting to tax authorities. The sole purpose of this letter is to notify you about the CTA’s existence so that you can discuss the CTA’s ramifications on you and your business with an attorney.
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC
Additional Resources and Guides
AICPA’s BOI Reporting Guidance and Resources Page: https://rb.gy/7r8wbw
Small Entity Compliance Guide: https://rb.gy/ckgs16
FinCEN Exemptions: https://www.fincen.gov/boi-faqs#C_2
FinCEN Q&A : https://www.fincen.gov/boi-faqs#B_2