The Reach of the Corporate Transparency Act and How to Avoid Its Penalties
Is your business ready for the reporting requirements of the Corporate Transparency Act (CTA), which took effect on January 1, 2024? Understanding the implications of this act for your small business is critical as compliance can shield you from potentially significant penalties. This article explores the fundamentals of this legislation and discover how you can ensure compliance to avoid its consequences.
The CTA introduces a new regulatory framework aimed at enhancing transparency and accountability in corporate structures. Central to this legislation is the requirement for businesses to file a Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN). By disclosing information about beneficial owners, the CTA seeks to combat illicit activities such as money laundering, terrorism financing, and tax evasion.
The Corporate Transparency Act was declared illegal by an Alabama federal district court on March 1, 2024. This notice provides a high-level summary of the decision and its implications for future CTA compliance. To summarize, the decision only affects the parties involved in the lawsuit, and FinCEN has explicitly said that it anticipates that all others will continue in adhering to the CTA.
What is the CTA?
The Corporate Transparency Act, passed by Congress, mandates businesses to file a Beneficial Ownership Information (BOI) Report with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The primary objective behind this law is to safeguard national interests and bolster efforts to combat money laundering, terrorism financing, tax fraud, and other illicit activities.
Who Must File a BOI Report?
Any Limited Liability Company (LLC), Professional Limited Liability Company (PLLC), corporation, or similar entity formed through state filing must submit a BOI report, unless qualifying for an exemption. While there are 23 categories of exempt entities, larger corporations, and entities already subject to significant federal or state regulations fall within this category.
The 23 exemptions from the Corporate Transparency Act
Securities reporting issuer
Governmental authority
Bank
Credit union
Depository institution holding company
Money services business
Broker or dealer in securities
Securities exchange or clearing agency
Other Exchange Act registered entity
Investment company or investment adviser
Venture capital fund adviser
Insurance company
State-licensed insurance producer
Commodity Exchange Act registered entity
Accounting firm
Public utility
Financial market utility
Pooled investment vehicle
Tax-exempt entity
Entity assisting a tax-exempt entity
Large operating company
Subsidiary of certain exempt entities
Inactive entity
What Information is Required in the BOI Report?
For non-exempt businesses, the BOI report necessitates comprehensive details, including the company’s legal name, trade names, address, jurisdiction of formation, Taxpayer Identification Number (TIN), and thorough information about each beneficial owner. Beneficial owners encompass individuals who either directly or indirectly exert substantial control over the reporting company or hold at least a 25% interest.
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When is the BOI Report Due?
The deadline for filing the BOI report varies based on the creation date of the business. For entities established before January 1, 2024, the initial filing is due by January 1, 2025. Those formed after this date must file within 90 calendar days, while businesses established after January 1, 2025, have 30 days to submit the BOI report.
Consequences of Non-Compliance
Ignoring the CTA requirements can lead to severe penalties. Violators may face fines of up to $591 per day for each violation, along with potential imprisonment of up to two years and fines reaching $10,000. Non-compliance encompasses failure to file a beneficial ownership report, providing false information, or neglecting to update previous reports when necessary.
Where to Access Further Information and File the BOI Report
Here is a link to the BOI filing system Beneficial Ownership Information (BOI) reports.
Take proactive steps towards CTA compliance and safeguard your business interests now. Visit FinCEN's website and stay ahead of regulatory requirements.
*Alabama federal district court found the Corporate Transparency Act to be unconstitutional on March 1, 2024. FinCEN, however, has communicated that this ruling only applies to the limited set of facts of the case before the court, and that CTA will continue to be required for the majority of covered businesses.
