CTA Filings/BOI Reports Approaching Deadline
The Corporate Transparency Act (CTA) became law on January 1st, 2021, with an effective date of January 1, 2024. It was part of the National Defense Authorization Act (NDAA) passed by Congress after overriding a veto by former President Trump.
The CTA requires that businesses file a BOI (Beneficial Ownership Information) with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury.
The purpose of the CTA is to deter illegal financial activity, such as money laundering, which is used by drug dealers and terrorists to finance their enterprises.
The CTA is concentrating on small businesses because large corporations already report their organizational status to federal agencies using different avenues, according to FinCEN Director Andrea Gacki. If an illegal enterprise fails to file a BOI or files an inaccurate one, it could trigger an investigation. If that said enterprise files an accurate report, it loses its anonymity.
As of June 2024, only 2.7 million of 32.6 million companies estimated to file have done so. While FinCEN touts its outreach program, the numbers don’t support their efforts as being effective. Regardless, there are no plans to extend the deadline.
If your company was registered with a state to do business prior to and including 2023, and you own at least a 25% interest or exercise substantial control of said reporting business, you must file a BOI with FinCEN by January 1, 2025. Businesses formed during 2024 have 90 days; those formed after 2024 have 30 days to file.
There are certain exemptions such as for large or publicly traded companies. These exemptions and other reporting requirements can be found in the Small Entity Compliance Guide: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
Failure to report incurs hefty penalties: $591 per day up to $10,000 civil and up to 2 years imprisonment criminal.
The information that must be reported includes the company name and trademark, address of the company’s main business site or operational location, taxpayer identification and jurisdiction in where they were formed.
The BOI must include personal information on the beneficiary owner including full name, address, date of birth and an identifying number from an acceptable document (driver’s license, passport, etc.) More information is required from businesses formed after January 1, 2024.
The BOI must be filed through the FinCEN e-filing base:
https://boiefiling.fincen.gov/
FinCEN has also created a FAQ for Beneficial Ownership Information which can be found here:
https://www.fincen.gov/boi-faqs#E_2
It’s important to know that any changes in Beneficial Ownership Information including but not limited to a change of address, legal name change or a new driver’s license; a change in operational procedure or delegation of duties where a new person is given substantial control over the company whether or not ownership is involved, must be reported within 30 days.
FinCEN can share the information on the BOI report under certain circumstances to six categories of recipients. More information is provided here:
It is interesting to note that the reporting requirement has already been challenged in court. In November 2022, the National Small Business Association and one of its members, Isaac Winkles, sued U.S. Department of Treasury Secretary Yellen and others challenging the constitutionality of the CTA. On March 1, 2024, the United States District Court for the Northern District of Alabama issued a judgement in favor of the NSBA and Isaac Winkles. On March 11, 2024, the government appealed. The appeal is currently pending.
While the ruling is in effect, Isaac Winkles and any of his reporting companies; the NSBA and its members are not required to comply with the CTA. As of June 2024, there are additional plaintiffs in Ohio, Maine, Michigan, Texas and Massachusetts.
The future of CTA/BOI may be in question, but as of now, most small businesses are probably required to file. Be aware and take steps to avoid those hefty penalties.