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Insight Corporate Transparency Act – Beneficial Ownership Information Reporting Requirement

By Steve Frinsko,

The Corporate Transparency Act (“CTA”) was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires certain entities to disclose the beneficial ownership information (otherwise known as “BOI”) from people who own or control a company.

The CTA is part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will be filed with the Financial Crimes Enforcement Network (FinCEN), an agency of the Department of Treasury.

Sources suggest that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.

We’re here to help assess if you have a BOI reporting requirement and how to meet the reporting obligation. Please contact us at your earliest convenience to discuss your business situation.

In the meantime, we’ve provided some preliminary information to consider as we approach the implementation period for this new reporting requirement.

What entities are required to comply with the CTA’s BOI 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 required to report include corporations, limited liability companies (LLCs), or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Domestic entities that are not created by filing a document with a secretary of state or similar office (such as general partnerships) are not required to report under the CTA.

Foreign companies required to report under the CTA include corporations, LLCs, or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

Are there any exemptions from the filing requirements?

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. 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:

  1. Employ more than 20 people in the U.S.;
  2. Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
  3. Be physically present in the U.S.

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 he/she directs, determines, or exercises substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or whether they have any ownership interest in the reporting company.

The CTA regulations further define the terms “substantial control” and “ownership interest”.

When must companies file?

There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.

  • Existing entities (created/registered before January 1, 2024) – must file by January 1, 2025
  • New entities created/registered between January 1, 2024, and December 31, 2024, will have 90 days after formation to file
  • Thereafter, beginning January 1, 2025, newly created entities must file within 30 days after formation
  • Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports – must file within 30 days

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
  • An IRS taxpayer identification (TIN).

Additionally, information on the entity’s beneficial owners and, for newly created entities, the entity’s company applicants 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.

Understand your reporting requirement.

While FinCEN has said publicly that it does not intend the CTA to be a “punitive” statute, penalties for willfully not complying with the BOI reporting requirement can include criminal and civil penalties of $500 per day and up to $10,000, and up to two years of jail time. Please contact our office today at 208.344.6000 to discuss. As always, planning ahead can help you comply and understand your filing obligations.

This blog is provided by Hawley Troxell Ennis & Hawley LLP for educational and information purposes only. It is intended to notify our clients and friends of certain events or issues. It is not intended to be, nor should it be, used as a substitute for legal advice regarding specific factual circumstances. © Hawley Troxell Ennis & Hawley LLP all rights reserved.

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