January 4, 2024
New rules implementing the Corporate Transparency Act (“CTA”) require that, as of January 1, 2024, substantially all business entities, including limited liability companies, corporations, limited partnerships, and the beneficial owners of each, file certain information with the Financial Crimes Enforcement Network (FinCen). The purpose of the CTA is to prevent money laundering, terrorism financing, and other illicit activities by increasing transparency and accountability in entity ownership. Unfortunately, the sweep of this law is very broad and includes small business entities and entities created for estate planning purposes. Although these new requirements may be somewhat burdensome, they cannot be ignored.
The CTA currently exempts twenty-three (23) types of entities from the reporting requirements. The most common exemptions include (i) qualified charities; (ii) business entities satisfying all three of the following criteria: (a) an operating presence at a physical office within the United States; (b) at least twenty (20) full-time employees; and (c) more than $5 million in gross receipts of sales in the previous year; and (iii) publicly traded entities or those otherwise regulated by the federal government.
Beneficial ownership information includes information of individuals who (1) directly or indirectly exercise substantial control over a reporting entity, or (2) directly or indirectly own or control twenty five percent (25%) or more of the ownership or voting rights of a reporting entity. If a trust satisfies either of the above two requirements, the trustee or beneficiaries may be considered beneficial owners under the CTA. Whether an individual has “substantial control” over a reporting entity requires a detailed analysis of the provisions of the CTA.
What Must be Reported
The new rules establish two groups of information that is required to be reported: (1) company information, and (2) beneficial owner and company applicant information.
Company Information. Consists of a reporting entity’s basic organizational information to include:
full legal name and any trade or d/b/a names of the company;
street address for its principal place of business;
state, tribal, or foreign jurisdiction of formation; and
Employer Identification Number of foreign tax identification number.
Beneficial Owner and Company Applicant Information. This must be reported for each beneficial owner and company applicant. This information includes such individual’s:
full legal name;
date of birth;
residential address (with limited exceptions);
an image of and the unique identifying number shown on, any one of the following:
current US passport;
current state-issued driver’s license;
current state, local, or tribal identification document, or
if none of the foregoing are applicable to such individual, the individual’s current foreign passport.
Alternatively, reporting entities and individuals may apply to FinCen and obtain a “FinCen identifier” number that may be submitted to FinCen in lieu of this information. Entities and individuals must update and correct information through an updated application for a FinCen identifier (similar to the requirement to update and correct previously filed beneficial ownership reports).
When to First Report.
Existing Entities. Existing entities as of January 1, 2024 will be required to submit BOI Reports by no later than January 1, 2025.
New Entities. Entities created on or after January 1, 2024 and before January 1, 2025 will be required to submit BOI Reports within ninety (90) calendar days of the earlier date on which: the reporting entity receives actual notice from a governmental authority that its formation has become effective; or a governmental agency first provides public notice (typically, this is when a state agency, such a secretary of state, publishes a company entity on a searchable database available to the public) that the company has been created. Entities created on or after January 1, 2025 will be required to submit BOI Reports within thirty (30) calendar days of the earlier of the date on which the reporting entity receives actual notice from a governmental authority that its formation has become effective; or a governmental agency first provides public notice that the company has been created.
Reporting entities also have thirty (30) days to report changes to an initial filing or to correct errors in a previous filing. This includes, but is not limited to, any change in a beneficial owner’s residential address or in the reporting entity’s business address.
Arnold, Gruber & Haren, Ltd. is Prepared to Assist You.
All reporting entities are required to file their reports through the FinCen website: https://www.fincen.gov/. Failure to file the required report with FinCen or submitting false or inaccurate information may result in significant fines and even imprisonment. Penalties can range from five hundred dollars ($500) for each day that a violation continues, up to ten thousand dollars ($10,000) and/or two (2) years in prison.
It is extremely important that you determine whether the CTA imposes a filing requirement upon any entities in which you own an interest, and if so, how each entity will comply. Arnold, Gruber & Haren, Ltd. is prepared to assist you. Please contact us and let us know if you have questions or concerns related to CTA compliance. If you do not contact us, we will assume that you are ensuring compliance on your own without the need for our services.
Very truly yours,
Richard W. Arnold, Esq.
Contact me via email or call (330) 563-4038