We want to make you aware of a new filing requirement. The Corporate Transparency Act (CTA), part of the National Defense Act for 2021, takes affect in 2024. The act requires a new disclosure of “Beneficial Ownership Information” (BOI) to the Financial Crimes Enforcement Network (FinCEN) (an agency of the Department of Treasury). The penalties for non-compliance are steep, so we wanted to provide a high-level summary for your consideration.
PLEASE NOTE: The CTA is not part of the tax code and the determination of beneficial ownership might require legal guidance. Since we are not attorneys, NBZ cannot provide a legal determination on beneficial ownership. As such, we cannot prepare or submit the CTA filing to FinCEN.
What entities are subject to the CTA’s reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies subject to the CTA include corporations, limited liability companies (LLCs) or any similar entity created under state or tribal law. Domestic entities that are not created with a secretary of state or similar office are not required to report under the CTA. Foreign companies subject to the CTA include corporations, LLPs, LLCs or any similar entity that is formed under foreign law and registered to business in the U.S.
Are there exemptions from the filing requirements?
There are 23 categories of exemptions, some of which include publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities. Please note, these are not blanket exemptions. In addition, many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
Certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.,
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return, and
- Be physically present in the U.S.
Given this definition, most small companies registered with their secretary of state will be subject to the CTA filing requirement.
Who is considered a “beneficial owner” of a Reporting Company?
A beneficial owner is any individual who, directly or indirectly, exercises “substantial control” or owns or controls at least 25% of the company’s ownership interests.
When must a company file?
- All new Reporting Companies — those formed or registered on or after January 1, 2024 — must report required information within 30 days after their formation or registration.
- All existing Reporting Companies — those formed or registered before January 1, 2024 — must report required information no later than January 1, 2025.
What are the penalties for non-compliance?
Penalties for willfully violating the CTA’s reporting requirements include:
- civil penalties of up to $500 per day that a violation is not remedied,
- a criminal fine of up to $10,000, and/or
- imprisonment of up to two years.
What should we do next?
As noted above, the CTA is not part of the tax code, so NBZ cannot advise on this issue. We recommend contacting your attorney to review the rules and determine if your entity is required to file.