The “Corporate Transparency Act” (the “CTA” or the “Act”) was actually passed back in 2021 as a part of the National Defense Authorization Act (“the NDAA”). Long-time readers might recognize the CTA from a post from this very blawg last year, and those readers are probably asking themselves whatever happened the Act – wasn’t it supposed to “activate” on January 1, 2024?

The short answer is “yes, but…” While the Act officially took effect as scheduled on January 1, 2024, the U.S. Treasury’s Financial Crimes and Enforcement Network (“FinCEN”) announced that it would not begin enforcing the CTA until December 31, 2024. So, between January 1 and today, the CTA has been a “recommendation,” more than a substantive law. But with December 31 right around the corner, now is the perfect time for a refresher as to what employers need to do on or before this New Year’s Eve.

First, a bit of context.  The CTA is intended to combat money laundering, tax fraud, and other illicit activities through the use of “shell entities.” Hence, the Act exempts large employers meeting all of the following requirements, as such employers are presumed to be legitimate business operations: 

1. employs more than twenty employees; 

2. filed in the previous year a tax return demonstrating more than $5 million in gross receipts or sales; and 

3. has an operating presence at a physical office within the United States.

Note that it is “and” not “or;” an employer must meet all three of the aforementioned criteria to be allowed to ignore the CTA.  If your business is lucky enough to satisfy all three elements, congratulations, you’re off the hook!  All you need to do is let the FinCEN know that you qualify for exemption, and you’re all set.  There are other exceptions as well, so let’s see how many of you we can excuse early.  In addition to large employers, the following entities can safely close this article, and get back to running their businesses:

1. those in a regulated industry (where existing regulatory regimens would already include beneficial ownership reporting), 

1. This refers to something like banking, credit unions, or other entities already covered under things like the Securities Exchange Act of 1934, or similar legislation.

2. Publicly traded companies, 

3. investment vehicles operated by investment advisors, nonprofits, and 

4. government entities.

Note that, for this second list, you only need to fall under one of the criteria, not all.  If you fall under any of these four additional exceptions, you can join our large employers for an early release day: just remember to report your exemption to FinCEN on or before December 31, 2024. There are additional exceptions, but chances are they won’t apply to anyone reading this particular article. In the interest of due diligence, however, if you want to be absolutely sure that there’s no exception that you might be able to qualify for, the exhaustive list of each and every potential exception can be found at the following link, under Section “C:” https://www.fincen.gov/boi-faqs#A_1. 

For everyone else, you’ll need to stick around long enough to see if your business falls under any of the following criteria, and thus constitutes a “reporting company” governed by the CTA.  Without further ado, the CTA applies to: “any corporation, limited liability company, or other similar entity created by filing a document with the secretary of state or similar office in any state or territory or with a federally recognized Indian Tribe or formed under the laws of a foreign country and registered to do business in the United States.” 

To simplify, the CTA applies to any corporations, LLCs, LLPs created within the United States that don’t qualify for an exception. That’s a pretty wide net, so unless you were able to wriggle out based on one of the above exceptions, you’re probably governed under the CTA.

So, what does the CTA actually require?
Existing “reporting companies” (i.e. companies who do not meet any of the aforementioned exceptions) must comply with the CTA no later than December 31, 2024.  Reporting companies formed on or after January 1, 2025, must comply within thirty days of their formation.

As noted above, the point of the CTA is to crack down on shell entities designed for money-laundering or similarly illegal schemes.  Accordingly, the goal of the CTA is to require reporting companies to preemptively disclose “beneficial owners” and “applicants” to FinCEN, so that they can confirm that your business is, in fact, an actual business – complete with all that entails – and not a fictitious entity cooked up for some nefarious purpose.

So, who exactly constitutes a “beneficial owner” or an “applicant?” Per the CTA: a “beneficial owner” is any individual who, directly or indirectly: (i) exercises “substantial control” over the entity (e.g., any senior officer) or (ii) owns or controls 25% or more of the ownership interests in the entity; an “applicant” is (i) the person who directly files the formation or registration document of the reporting company, and (ii) the person who was primarily responsible for directing such filing.  Note the “and” and “or” language, respectively; pursuant to the CTA, there might be any number of beneficial owners, but there are only ever exactly one or two applicants.

Once you’ve identified all of your beneficial owners, and your exactly one-or-two applicants, what information must be reported, and to whom?  Thankfully, it’s really not that much:

1. full legal name;

2. date of birth;

3. current residential or business street address; and

4. a unique identifying number from an acceptable identification document (passport, driver’s license or other government issued identification document), or a FinCEN identifier.

We were bracing ourselves to find out that FinCEN was demanding some obscure tax documentation or original birth certificates, but surprisingly, the CTA only requires reporting companies to provide the sort of information any given person currently in possession of their wallet could provide in under thirty seconds.  So that much is a relief, at least!

So, by now you’re asking: how exactly do reporting companies go about getting this information to the FinCEN? Believe it or not, even the FinCEN itself wasn’t entirely sure about this part until fairly recently,  hence the actual enforcement deadline not kicking in for an entire year after the Act takes effect. Thankfully, the FinCEN has finally supplied a link to the requisite form here: https://boiefiling.fincen.gov/. The site is refreshingly user-friendly for a government website, and between this article and that link, you should have everything you need to determine whether you are required to report, and if so, how and when to do so.

That said, just in case you find yourself thinking “Well, this looks pretty easy, I’ll just wait until closer to the deadline,” we have one last piece of information about the Act that you’ll definitely want to hear: penalties. Failure to comply with the reporting requirements of the CTA can result in civil and criminal penalties up to and including $10,000, and two years’ in prison for willfully providing false information, or for failing to provide complete information or failing to update information.  Senior officers in particular should take not, as they might be liable for penalties even where they personally did not contribute to the non-compliance.  

You’re probably experiencing a bit of sticker shock at those penalties – we certainly did – but there’s no need to panic.  Now that the pertinent language has been defined, compliance with the CTA is actually fairly simple.  If you do not qualify for any of the exceptions provided above, you are a “reporting company.”  If you are a “reporting company,” you must disclose the full name(s), birthday(s), mailing address(es), and driver’s license / ID card number of all of your “beneficial owners” and “applicants” (as defined above) to FinCEN on or before December 31, 2024, via the link provided both here and above: https://boiefiling.fincen.gov/. 

Deadlines
Quoted directly from https://www.fincen.gov/boi-faqs#B_2:

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report.

A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.

Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.

We highly recommend that you go ahead and file your BOI this week - that way, you won’t find yourself desperately refreshing an overloaded government website this New Year’s Eve while everyone else enjoys the festivities. We actually had to fill out this form ourselves, and we’re happy to report that it was a free, relatively smooth, painless process that took all of 10 minutes for the Firm to complete. 

Be Wary of Scams and Phishing!
One last heads-up: there have apparently been quite a few scams going on surrounding the CTA recently, so if you receive anything purportedly from FinCEN regarding your reporting status containing any form of link, QR code, or asking you to send additional information in the form of a reply email, that’s not FinCEN. FinCEN will never ask you to click and links, download any files, or send any additional information via email. FinCEN won’t even remind you that the form is due! If you receive any such email claiming to be from FinCEN, report this fraudster immediately, and block their email address for the future. Should you find yourself faced with a suspicious-looking email that looks legitimate enough to have you second-guessing yourself, reach out to us or another trusted expert to double-check; this is one of those scenarios where an ounce of prevention is worth a pound of cure.

If you have any questions about the CTA, FinCEN, or anything else for that matter, just give us a call. As always, we are here to help.