As of January 1, 2024, the Corporate Transparency ACT (“CTA”) requires that most business entities, including but not limited to corporations, limited liability companies, limited partnerships, as well as the beneficial owners of such entities, submit certain information to the Financial Crimes Enforcement Network (“FinCEN”). The CTA is intended to increase accountability and transparency in entity ownership in an effort to prevent the funding of terrorism, money laundering, and similar illicit activities. The scope of these new regulations is broad and likely applies to small business entities as well as entities created and used for estate planning purposes. Although burdensome, the beneficial owners of effected entities must strictly comply with these new requirements to avoid significant fines and consequences.
Entities Exempt from Reporting Requirements
There are many types of entities that are exempt from the new reporting requirements. We encourage you to review each exemption to determine whether your entity falls within an exemption category, but the more common exemptions include qualified charities, publicly traded entities, entities that are otherwise regulated by the federal government, and entities that (i) have an operating presence at a physical office within the United States, (ii) have at least twenty (20) full-time employees, AND (iii) have more than $5 million in gross receipts or sales in the previous year.
Beneficial Owners Required to Report
Beneficial owners who either (i) directly or indirectly exercise substantial control over a reporting entity, or (ii) directly or indirectly own or control twenty-five percent (25%) or more of the ownership or voting rights of a reporting entity must satisfy the reporting requirements. If a trust satisfies either of the above requirements, then the beneficiaries and/or trustee may qualify as beneficial owners per the terms of the CTA. Determining whether an individual maintains “substantial control” over a reporting entity requires a case by case analysis of the CTA’s provisions as applied to the owner’s relationship with such entity.
Information to Report
The new regulations require that two types of information be reported: (i) company information, and (ii) beneficial owner and company applicant information. Company information consists of the basic organizational information of the reporting entity, including, but not limited to, (i) the full legal name and any trade or fictitious name of the company, (ii) the street address of the company’s principal place of business, (iii) the jurisdiction of formation of the company (i.e., state, foreign, tribal), and (iv) the Employer Identification Number or foreign tax identification number assigned to the company. Beneficial owner and company applicant information consists of such individuals’ (i) legal name, (ii) date of birth, and (iii) residential address, as well as (iv) an image of and the identifying number from the individuals’ current passport, state-issued driver’s license, state, local, or tribal identification document, or current foreign passport if the individual does not have any of the previously described documentation. Alternatively, reporting entities and individuals may be permitted to apply to FinCEN to obtain a “FinCEN Identifier Number” that may be submitted to FinCEN in lieu of the foregoing information. Please be aware that entities and individuals must correct and keep current the information submitted to FinCEN through an updated application for a FinCEN Identifier Number, which is not unlike the CTA requirement to update and correct any previously submitted beneficial ownership interest report (the submission of the foregoing information is hereinafter referred to as “BOI Reports”).
Reporting Deadlines
For entities that exist as of January 1, 2024, all BOI Reports must be submitted to FinCEN by January 1, 2025. For entities formed on or after January 1, 2024 and prior to January 1, 2025, all BOI Reports must be submitted to FinCEN within ninety (90) calendar days of the earlier of (i) the date on which the reporting entity receives notice from a governmental authority that the entity’s formation has become effective, or (ii) the date on which a governmental authority issues public notice of the formation of the entity (i.e., the Secretary of State updates its publicly searchable database with the entity’s information).
Entities created on or after January 1, 2025 must submit BOI Reports within thirty (30) calendar days of the earlier of (i) the date on which the reporting entity receives notice from a governmental authority that the entity’s formation has become effective, or (ii) the date on which a governmental authority issues public notice of the formation of the entity.
Furthermore, reporting entities will only have thirty (30) days to submit changes to an initial filing or to correct any errors contained in previous submissions. An example of a change in information that would require an updated filing of a BOI Report includes, but is not limited to, a change of address of a beneficial owner or the reporting business, the addition of beneficial owners, and the like.
Reporting Process
Reporting entities must file their BOI Reports through FinCEN’s website at https://www.fincen.gov/. It is important to note that failure to file the requisite BOI Reports and/or submitting inaccurate or false information may result in substantial fines and, in some cases, imprisonment. Penalties range from civil fines of up to five hundred dollars ($500) for each day of a continuing violation, and criminal fines of up to thousand dollars ($10,000) and/or potentially two (2) years in prison. Given the foregoing consequences, you are strongly encouraged to determine whether you and/or your entity fall within the CTA’s definitions of entities and individuals required to submit BOI Reports, and if so, how to comply with such requirements.
How Block & Scarpa Can Help
Please note that, although Block & Scarpa may have assisted you in establishing an entity that is subject to the CTA reporting requirements, we cannot assist you in fulfilling such reporting requirements unless you contact our office and engage our Firm to do so. If you do not contact our Firm, we assume you are ensuring your own compliance with the CTA requirements without the support of our Firm. We would be happy to serve you in this capacity, whether or not we assisted in the establishment of your entity.
Don’t wait, act now. Call our firm at 772-794-1918.
