Compliance with the Corporate Transparency Act (CTA)

Feb 7, 2024

The new year brought with it new filing requirements for many entities. On January 1, 2024, the Corporate Transparency Act (CTA) became effective. Under the CTA, applicable entities will have to file an initial report with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

WHAT IS THE PURPOSE OF THE CTA?

Enacted as part of the National Defense Authorization Act of 2021, the CTA is an attempt to crack down on illegitimate entities and prevent businesses from being used to promote illicit activities. The Treasury Department issued final rules to implement the CTA on September 30, 2022, which were subsequently amended on November 8, 2023, November 30, 2023, and December 22, 2023. The rules are “intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.” The goal is to help better understand how the owners of entities may be connected, and to trace the flow of money to reduce a key illicit finance risk for the U.S. financial system. To do this, the CTA provides FinCEN with information on the identities of the individuals who own or control entities doing business within the United States. The CTA intends to reach entities not otherwise regulated by previous rules or rulemaking agencies. As a result, the CTA will impact a majority of small business entities, including some trusts.

WHO IS A REPORTING COMPANY AND WHAT MUST THEY REPORT?

A Reporting Company is any entity created by filing with a secretary of state (or similar state or tribal office), unless the entity is specifically excluded under one of the CTA’s exceptions. The term “Reporting Company” is broadly defined to include corporations, limited liability companies, limited partnerships, business trusts, and other similar entities. The law regulating reporting is complex and fact specific. One major exemption is for large operating companies that have (i) an operating presence at a physical office within the U.S., (ii) more than 20 full time employees in the U.S., and (iii) filed a federal income tax return for the prior year demonstrating more than $5,000,000 in gross receipts or sales from within the U.S. If you believe your entity may qualify as exempt from the Act, we still encourage you to consult your attorney to confirm application of the exemption.

Reporting Companies must report information on: (1) the company itself, (2) its “Beneficial Owners,” and (3) its “Company Applicants.” Beneficial Owners are any individual who directly or indirectly exercises substantial control over the company or owns or controls at least 25% of the ownership interests of the company. An individual exercises substantial control over a Reporting Company if they serve as a senior officer of company, have authority over the appointment or removal of any senior officer or majority of the board of directors, or directs, determines, or has substantial business influence over important business decisions. A “Company Applicant” is any individual who filed the organizing documents which formed a Reporting Company or anyone who directs or controls the filing of the organizing documents by another person. Company Applicants are limited to two individuals for reporting purposes.

The regulations associated with the CTA are complex and very fact specific. If you’d like assistance in determining which individuals are considered beneficial owners or company applicants within your entity, please contact your attorney.

WHAT INFORMATION WILL BE REPORTED TO FINCEN?

Reporting Company Information

Full legal name
Any trade names or D/B/A names
Current street address for principal place of business (foreign companies must provide the address of the primary U.S. location)
State, tribal, or non-U.S. jurisdiction of formation or registration (foreign companies must also provide where it was first registered in the U.S.)
Tax identification number (TIN), including an Employer Identification Number (EIN)
Identity document from an issuing jurisdiction

Beneficial Owner and Company Applicant Information

Full legal name
Date of birth
Current Residential Address (company applicants may provide business address)
PDF photocopy of U.S. Passport or Driver’s License

We understand that the CTA requires submission of very personal and private information. To discuss how to comply with the CTA while best preserving the security of your private information, please contact our office.

FILING INITIAL BOI REPORTS

The November 30, 2023, amendment to rule increased the time frame in which Reporting Companies created in 2024 must file initial BOI reports. As such, the current deadlines are as follows:

Reporting companies created prior to January 1, 2024 must file their initial BOI report by December 31, 2024.
Reporting companies created between January 1, 2024 and December 31, 2024 must file a BOI report with FinCEN within 90 calendar days after the date they receive notice of the creation or registration from a secretary of state or similar office
Reporting companies created January 1, 2025 and thereafter must file a BOI report with FinCEN within 30 calendar days after the date they receive notice of the entity’s creation or registration from a secretary of state or similar office
Any Reporting company that stops qualifying for an exemption must file a BOI report with FinCEN within 30 calendar days after the date that it no longer meets the exemption criteria.

Nonetheless, reporting companies should begin gathering required information as soon as possible.

FILING UPDATED BOI REPORTS

Reporting Companies should be aware that if information about the Reporting Company or its Beneficial Owners changes after the Reporting Company files an initial BOI report, the Reporting Company must file an updated BOI report within 30 calendar days of when the change occurs. Additionally, if a Reporting Company discovers any inaccuracy in a previously filed BOI report, a corrected BOI report must be filed within 30 days of discovery. Reporting Companies should implement a compliance process to monitor and report on changes or inaccuracies in BOI reports.

PENALTIES

Any person who willfully provides false information or willfully fails to comply with the reporting requirements is liable for civil penalties of up to $591 a day for each day the violation continues. Additionally, violators are subject to criminal penalties of up to two years of imprisonment and fines of $10,000.00. The Act does contain a safe harbor from penalties if a reporting company corrects the inaccuracy within ninety (90) days of when it was filed and if the inaccuracies were not made: for the purpose of evading the Act’s requirements or known at the time of filing.

FINCEN WILL NOT SOLICIT PERSONAL INFORMATION

We urge individuals to beware of phishing scams. FinCEN has alerted the public of individuals who are attempting to solicit information pertinent to the CTA. The fraudulent communication may be titled or reference “Importance Compliance Notice” and ask the recipient to click a URL or scan a QR code. These communications are fraudulent. Moreover, “FinCEN does not send unsolicited requests and does not seek personal or financial information from . . . the public.” Accordingly, please exercise caution if you receive a communication claiming to be from FinCEN or another government entity.

The law and rules regulating Reporting Companies and BOI reports are complex and fact specific. If you would like assistance determining whether your company has a reporting requirement, now is the time to contact an attorney. Work with an attorney to create an internal plan for routine monitoring of reported information and to update the report quickly if any reported information changes. Going forward, make sure to consult an attorney when creating new entities to assess if the CTA applies to your entity and, if so, to ensure the Initial Report is accurately and timely submitted.

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This article is for general informative purposes only, is not a comprehensive statement of obligations under the CTA and should not be construed or relied upon as – nor does it create an engagement for – legal advice. Please consult your attorney if specific legal information is desired.

Simmons Perrine Moyer Bergman PLC is a full service law firm with locations in Cedar Rapids and Coralville, Iowa. For more information, visit spmblaw.com.

Compliance with the Corporate Transparency Act (CTA) in 2024 and Beyond