The Federal Corporate Transparency Act (CTA): What Business Owners Need to Know

Jaime Aulicino, EA

[email protected]

The Federal Corporate Transparency Act (CTA) became effective on January 1, 2024, to combat money laundering, terrorism, drug trade and other illegal activities with shell companies set up in the United States (U.S.). The law creates a new filing requirement for many smaller domestic and foreign entities. The effected entities must file a Beneficial Ownership Information (BOI) report online with the Financial Crimes Enforcement Network (FinCEN). The filing requirements depend on when the entity was established and requires updates each time required information changes.

Who are Beneficial Owners?

Beneficial owners are the individuals who directly or indirectly own or control at least 25% of the ownership interests of a reporting company or exercise “substantial control” over a reporting company. Their information will be included in the report that is filed with FinCEN, including, but not limited to, a digital photocopy of a driver’s license or passport.

Who Must File

The entities that meet these new requirements are all domestic and foreign entities that have filed formation or registration documents with a U.S. state or tribal jurisdiction unless an exemption applies. Exemptions are made for several entities– including banks, publicly traded companies, public accounting firms, certain registered investment companies and investment advisors, tax-exempt entities, large operating companies and more.

There are 23 exemptions, a list of which can found be found here: https://www.fincen.gov/boi-faqs#C_2.  One exemption that may apply more than any other is the large operating company exemption (#21). The CTA describes a large operating company as an entity that meets all three of the following criteria:

  1. Employs more than 20 full-time employees in the U.S.
  2. Filed more then $5 million in gross receipts or sales in the prior year (excludes foreign receipts)
  3. Has an operating presence at a physical office in the U.S.

When to File

Companies created before January 1, 2024, must file the BOI report by January 1, 2025. If created on or after January 1, 2024, and before January 1, 2025, the company must file the BOI report within 90 days of receiving actual or public notice that its creation has become effective. If the company is created on or after January 1, 2025, the filer has 30 days after the date of notice. The report is not an annual filing; however, changes in the required disclosure must be reported within 30 days. These changes include beneficial ownership changes, exemption status, transfers of ownership when a minor child reaches age of majority and change in name or address.

Falsifying information or failure to report can lead to civil penalties of up to $500 per day. As the violation continues, criminal penalties may be imposed of up to $10,000, imprisonment of up to two years or a combination of fines and imprisonment.

Security

The BOI database is non-public and is held at the highest level of cyber security. FinCEN has the right to disclose information held in this database to U.S. federal agencies, state and local agencies, foreign law agencies, financial institutions, federal regulators, and the U.S. Treasury when it is deemed necessary.

Questions?

If you have any questions or concerns with these Acts, please reach out to your trusted Louis Plung & Company advisor or email [email protected]. For more information and a full list of exempted entities, please visit https://fincen.gov/.

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