SIGNIFICANT PENALTIES FOR NON-COMPLIANCE
Starting January 1, 2024, the Corporate Transparency Act (“CTA) will go into effect. The CTA requires the disclosure of the beneficial ownership information (“BOI”) of certain entities from people who own or control a company. The CTA is not a part of the tax code, as the new BOI report will be filed with the Financial Crimes Enforcement Network (FinCEN), not the IRS.
Below is some preliminary information for you to consider as you approach the reporting period for this new reporting requirement. This information is general in nature and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or other retained professional adviser.
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both inside and outside the U.S. may be subject to the new reporting requirements. Companies required to report include any entity created by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe (i.e., Limited Partnership, Limited Liability Partnership, Limited Liability Company, Corporation, etc.).
When must companies file?
The reporting timeframe depends on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
- New entities created/registered on or after 1/1/2024 and before 1/1/2025 must file within 90 days after formation or registration.
- New entities created/registered on or after 1/1/2025 must file within 30 days after formation or registration.
- Existing entities created/registered before 1/1/2024 must file no later than 1/1/2025.
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports must file within 30 days.
Are there any exemptions from the filing requirements?
Yes, there are 23 categories of exemptions. Included in the exemptions list are 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:
- Employ more than 20 full-time employees in the U.S., and
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return, and
- Be physically present in the U.S.
Please visit Understanding the 23 exemptions from the CTA reporting requirements | Wolters Kluwer for more information on the exemptions.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
What sort of 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
- IRS taxpayer identification number (TIN)
Additionally, information on the entity's beneficial owners and for newly created entities, the company applicants of the entity is required. This information includes name, birthdate, address, and 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.
Risk of non-compliance
Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 and/or up to two years of jail time.
Trout CPA Reporting
The BOI information to be reported arises from determinations that are primarily legal in nature. For various reasons, including concerns regarding the potential for the unauthorized practice of law, Trout CPA is unable to prepare these forms or assist clients in preparing these forms.
We encourage you to contact legal counsel as soon as possible to determine how the CTA will impact your business. For more information, please visit Beneficial Ownership Information Reporting | FinCEN.gov/boi-faqs.
