October 16, 2023
The Sweeping New Reporting Rules of the Corporate Transparency Act.
By: Melissa Balocca, Esq.
“For small businesses, you need less taxes, less federal spending, and you need less regulation that blocks their growth.”
- David Malpass
In an attempt to combat money laundering, tax fraud, and financing of terrorism, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) is establishing a new, nonpublic database to collect the personal information of small business owners.
Effective January 1, 2024, the Corporate Transparency Act (CTA) will require nearly every legal entity incorporated, organized, or registered to do business in any state to report certain “beneficial ownership information” (BOI) to FinCEN.
1. Who Must be Identified in the Report?
The CTA requires that the BOI report identify (1) any individual who, directly or indirectly, exercises substantial control over the reporting company, and (2) any individual who owns or controls 25% or more of the ownership interests of the reporting company.
Under the CTA, an individual exercises substantial control over a reporting company if the individual serves as a senior officer of the reporting company, such as the president, chief financial officer, or general counsel. According to FinCEN, whether a particular director of a reporting company has substantial control is to be made on a director-by-director basis.
One must look to the Final Reporting Rule to apply the standards for calculating whether an individual has met the 25% ownership or control threshold to qualify as a beneficial owner under the CTA.
2. What Information is to be Reported?
A reporting company must disclose the following regarding each of its individual beneficial owners:
· Full legal name.
· Date of birth.
· Complete current address (applicant’s residential street address).
· US Passport, state I.D., or state Driver’s License.
An individual may obtain a FinCEN identifier (FinCEN ID) on or after the effective date by providing to FinCEN the same information as the reporting company is required to provide regarding its beneficial owner. The reporting company may then report the individual’s FinCEN ID on its BOI report in lieu of listing the specific information described above.
3. When Must Reports be Filed?
For companies that are created before the January 1, 2024 effective date, the initial BOI report will not be due until January 1, 2025. For all other companies, a BOI report must be filed within 30-days of formation (subject to a proposed extension to 90 days for reporting companies created or registered in 2024). BOI reports are to be submitted electronically through the secure filing system that will be available through FinCEN’s website.
The CTA provides for civil and criminal penalties for violations, including a fine of up to $10,000, imprisonment for up to two years, or both, for any person who willfully either provides or attempts to provide false or fraudulent BOI or fails to report complete or updated BOI to FinCEN. The CTA also sets out civil and criminal penalties that may be imposed on any person knowingly disclosing or using the BOI reported to FinCEN in an unauthorized manner.
Questions or comments? Contact Melissa Balocca, melissa@baloccalaw.com.
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