FAQs to Help You Navigate the CTA and BOI
On January 1, 2024, the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Treasury, launched the Corporate Transparency Act (CTA). The CTA is intended to reduce illegal business activities, financial crime and money laundering within U.S. businesses. A key component of the CTA includes enhanced reporting surrounding beneficial ownership information (BOI).
These enhanced reporting requirements will help FinCEN crack down on anonymous shell companies, which have been used in the past by money launderers, criminals and terrorists to hide their illegal activities. Because the legislation went into effect at the beginning of the year, business owners are now required to submit a BOI report to FinCEN.
Following are FAQs to help business owners better understand the CTA and its BOI reporting requirements.
What companies are required to comply with CTA and BOI reporting requirements?
The CTA applies to “reporting entities,” which include any of the following:
- Corporations
- Limited liability companies (LLCs)
- Limited partnerships (LPs)
- Limited liability partnerships (LLPs)
- Business trusts
- Other types of business entities created with a filing document
- Businesses formed under a foreign country’s laws and registered to conduct business within the United States
As a general rule of thumb, the reporting requirements apply to entities registered with a secretary of state or any similar office within your state.
Can a company be exempt from reporting requirements?
Yes. Certain types of companies aren’t subject to BOI reporting requirements, including:
- Large operating companies with more than 20 full-time U.S.-based employees, a physical office in the United States and gross receipts/sales of more than $5 million (as noted in the company’s previous year’s U.S. tax filing)
- Public companies registered with the Securities and Exchange Commission (SEC) under the Securities and Exchange Act
- Banks and credit unions
- Registered investment companies and investment advisors
- Pooled investment vehicles managed by certain other exempt entities
- Accounting firms registered with the Public Company Accounting Oversight Board
- Tax-exempt entities
- Inactive entities
Who’s considered a beneficial owner of a company?
A beneficial owner is defined as an individual who, directly or indirectly, either exercises “substantial control” over a business or controls at least 25% of the ownership interest of the business.
What qualifies as “substantial control”?
An individual is considered to have substantial control over a company if he or she falls into any of the following categories:
- Is considered a senior officer of the company, such as president, chief executive officer, chief operating officer, chief financial officer, general counsel, etc.
- Has authority to appoint or remove certain officers or a majority of directors of the company
- Is considered an important decision-maker for the company
- Has the ability to direct the business’s financial transactions
- Exercises any other form of substantial control, as defined in FinCEN’s Small Entity Guide
What information must be included in the BOI report?
The following information must be reported for each beneficial owner:
- Full name
- Date of birth
- Current residential address
- Unique identification number, such as a driver’s license or passport ID, as well as a photo of the applicable document
In addition, companies must report the following information about their business:
- Legal and trade names
- Full address of the company’s primary place of business
- Jurisdiction of formation or registration
- Tax identification number
Who can access beneficial ownership information?
The information included in BOI reports isn’t available to the general public. Typically, information is available to the following entities for the purposes of law enforcement or national security:
- U.S. federal agencies responsible for national security or intelligence
- U.S. federal, state, local, tribal and foreign law enforcement agencies
- The U.S. Department of the Treasury
- Financial institutions subject to regular due diligence and the regulators that monitor compliance with due diligence requirements
What’s the deadline for filing information?
The filing deadline for businesses that existed as of December 31, 2023, is January 1, 2025. New businesses established between January 1, 2024, and January 1, 2025, must file within 90 days of a notice of formation or public announcement, whichever came first. Businesses established on or after January 1, 2025, must file within 30 days of their public announcement or formation.
Ongoing, any changes to a business’s beneficial ownership, including changes in name or address, must be filed with FinCEN within 30 days.
What happens if a business fails to comply with CTA and BOI reporting requirements?
Failing to comply with the CTA’s reporting requirements can result in civil fines of up to $500 per day per non-compliant individual. Anyone who willfully provides fraudulent information or seeks to withhold information may face criminal fines up to $10,000 and/or be sentenced to up to two years in prison.
How does a company file the necessary report?
Filing is available on FinCEN’s BOI e-filing website, boiefiling.fincen.gov.
Fortunately for business owners, anyone who the reporting company authorizes to act on its behalf can file the BOI report. Because certain guidance about who qualifies as a beneficial owner can be subject to interpretation, it may be wise to work with a qualified advisor or tax professional to file the form.
If you could use some help navigating CTA and BOI reporting requirements, reach out to your Creative Planning wealth manager.
