The Corporate Transparency Act

Beginning on January 1, 2024, the Corporate Transparency Act ( the ACT) requires each entity that qualifies as a “reporting company” (as detailed below) to file a report (BOI Report) with the Department of Treasury’s Financial Crimes Network (FinCEN), identifying information about each “beneficial owner” (as detailed below), and each “company applicant” (as described below), of such entity.

The ACT aims to enhance company ownership transparency to combat money laundering, tax fraud, and other illicit activities. It was enacted after a two-decade investigation of numerous U.S. shell companies formed by criminal actors and foreign governments and used in ways that threaten U.S. national security. Unfortunately, the Act creates a reporting requirement for virtually all companies to be effective.

Although the reporting is inconvenient and intrusive, a corporate entity remains essential for a business structure and insulation from personal liability.

Breaking News

– On March 1, 2024, U.S. District Court Judge Liles C. Burke declared the Corporate Transparency Act unconstitutional in a summary judgment ruling on behalf of the National Small Business Association. The case will continue in the federal court appeals system. We will keep an eye on it and report on any developing news.

As the appeals process continues in the above case, you must know the Act’s strict compliance rules and reporting deadlines.

Is Your Company Required to Report?

All companies registered as entities with the secretary of state or similar office, such as a corporation, LLC, LLP, or other business, are considered a “reporting company” that must file under the Corporate Transparency Act.

All foreign reporting companies registered for business in the United States must also file under the ACT.

Is Your Qualifying Company Exempt?

Although your company must likely report under the Corporate Transparency Act, 23 limited exempt entities exist. These include government authorities, banks, public accounting firms, insurance companies, investment advisors, SEC reporting companies, and nonprofit entities, which are not subject to reporting.  

Also exempt as “large operating companies,” defined as companies with gross receipts exceeding $5 million, employing more than 20 full-time employees working more than 30 hours per week, and having a physical office in the U.S.

Are You a Beneficial Owner?

As a reporting company, you must file identifying information with FinCEN on all ‘beneficial owners.” Consequently, these are defined as someone who owns 25% or more of a company or exercises substantial control over the company. For example, a CEO or senior officer and those who have control or the appointment of such officers.

Agents, employees, accountants, and lawyers are examples of exceptions to the definition of beneficial owner. However, an accountant or lawyer who files the initial company formation and registration documents may have reporting requirements as a “company applicant.”

The beneficial owner area of the Corporate Transparency Act is vague and subject to interpretation. Therefore, there will most certainly be challenges in the future. Consequently, carefully reviewing the ACT is essential to determine whether you are a beneficial owner.

What Information Must be Filed?

Filing requirements for the reporting company include:

• Full legal entity name
• Full legal address
• Jurisdiction filed, such as secretary of state office of registration
• Tax Payer Identification Number ( EIN, TINS, DUNS, or LEI)
• Alternatively, a FinCEN Identifier can be filed for registrants who submit multiple registrations and can avoid repeating the information.

Filing requirements for a beneficial owner or company applicant:

• Full legal name
• Full legal address
• Date of Birth
• A legal identifier number from a non-expired driver’s license, U.S. passport, or state or local government-issued ID.
• The legal identifier document image
• Alternatively, a FinCEN Identifier can be filed for registrants who submit multiple registrations and can avoid repeating the information.

A reporting company formed before January 1, 2024, must not report company applicant information.

What are the Filing Deadlines?

Any reporting company formed before January 1, 2024—such as companies currently operating—has one year (until January 1, 2025) to file their initial report with FinCEN.

A reporting company formed on or after January 1, 2024, but before January 1, 2025, has 90 days to submit an initial report to FinCEN.

Finally, a reporting company formed on or after January 1, 2025, has only 30 days to submit an initial report.

Penalties for Noncompliance

The consequences for noncompliance include civil penalties of $500 per day, penalties of up to $10,000, or imprisonment for up to two years (or all of the preceding).

Importantly, inadvertent inaccuracies are forgiven without penalty if the petitioning party can prove: (i) the information was corrected within 90 days of the applicable filing, (ii) it did not know of the inaccuracy at the time of filing, and (iii) it was not knowingly trying to evade the reporting requirements.

What Happens to the Information You Provide?

Given the confidentiality of the collected information, FinCEN must maintain the information it collects under the Act in a “confidential, secure, and nonpublic database.”

Unlike similar databases in countries like the U.K., FinCEN’s database of such information will not be readily available to the public. However, FinCEN is expressly authorized to share the collected data (or any portion thereof) with certain government agencies, financial institutions, and regulators, subject to appropriate protocols to further national security, intelligence, or law enforcement activity.

How Do You File?

You can have your agent or representative file directly on your behalf. Alternatively, you can file the report on the FinCEN website by writable PDF or system-to-system API. You can access the registration forms on this link.

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Please contact us today for further information, or visit Tuohy Law Offices now.

Tom Tuohy

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This blog entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts and laws in specific jurisdictions. No reader of this blog should act or refrain from acting based on any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country or other appropriate licensing jurisdiction.