office workers filling out the beneficial ownership information reporting form
Business Law, Tax Requirements

Corporate Transparency Act Requirements and Filing Instructions

  • Failure to file can result in up to $500 a day in penalties
  • Many businesses are exempt from filing, however, you want to make sure you property determine if you are or are not exempt.
  • The stated purpose is to uncover criminal organizations and hidden ownership, however, I wouldn’t be surprised if the net result is a greater burden for tax payer business owners with little additional law enforcement help.
  • When you’re required to report, if at all, depends on when you started your business.

Busi­ness own­ers have yet anoth­er gov­ern­ment reg­u­la­to­ry require­ment placed on them. At least many do, and here we’ll dis­cuss what you need to know in order to deter­mine if you’re required, and if so, what you need to do. Keep in mind that the penal­ties are no joke with DAILY penal­ties for fail­ure to file.

The Cor­po­rate Trans­paren­cy Act (CTA), effec­tive from Jan­u­ary 1, 2024, intro­duces a sig­nif­i­cant reg­u­la­to­ry require­ment for busi­ness­es in the Unit­ed States. This leg­is­la­tion man­dates report­ing com­pa­nies to dis­close their ben­e­fi­cial own­er­ship infor­ma­tion to the Finan­cial Crimes Enforce­ment Net­work (Fin­CEN).

The act aims to enhance trans­paren­cy and com­bat finan­cial crimes like mon­ey laun­der­ing and ter­ror­ism financ­ing. 

Understanding the Corporate Transparency Act

The CTA is a response to what is believed to be an increas­ing need for trans­paren­cy in busi­ness own­er­ship to deter illic­it activ­i­ties. It requires small busi­ness­es to report key infor­ma­tion about their ben­e­fi­cial own­ers—those who own or con­trol 25% or more of the com­pa­ny, or have sub­stan­tial con­trol over the com­pa­ny’s oper­a­tions, regard­less of their own­er­ship per­cent­age.

This infor­ma­tion includes legal names, birth dates, res­i­den­tial address­es, and an iden­ti­fi­ca­tion num­ber (e.g., dri­ver’s license or pass­port num­ber).

There are specific deadlines for compliance based on when a company was established:

  • Com­pa­nies formed before Jan­u­ary 1, 2024, have until Jan­u­ary 1, 2025, to file their ini­tial reports.
  • Com­pa­nies formed on or after Jan­u­ary 1, 2024, must file with­in 30 days of their estab­lish­ment.
  • Amend­ments or updates to the own­er­ship infor­ma­tion must be report­ed with­in 30 days of any change.

Who Must File

The CTA pri­mar­i­ly tar­gets small­er, pri­vate­ly-owned enti­ties, requir­ing them to dis­close ben­e­fi­cial own­er­ship infor­ma­tion to Fin­CEN. The cri­te­ria for enti­ties required to file are as fol­lows:

Reporting Companies:
    • Corporations, LLCs, and Other Similar Entities: If your entity is a corporation, limited liability company, or other entity created by filing a document with a state office or formed under the laws of a foreign country but registered to do business in the U.S., you are likely required to file.
    • Newly Established Entities: Entities formed on or after January 1, 2024, must file within 30 days of creation. This prompt reporting ensures timely compliance from the inception of the business.
    • Existing Entities: Entities formed before January 1, 2024, have a longer grace period but must comply by submitting their initial report by January 1, 2025.
Beneficial Owners:
    • Individuals who directly or indirectly own or control 25% or more of the ownership interests in a reporting company.
    • Individuals with significant responsibility to control, manage, or direct a reporting company, including but not limited to an executive officer or senior manager, or any other individual who regularly performs similar functions.
    • Company Applicants (For New Entities Post-2024):
      • The indi­vid­u­als who file the appli­ca­tion to form the enti­ty or who direct or con­trol the fil­ing of such doc­u­ments are also required to be report­ed.

Exemptions from Filing

The CTA pro­vides spe­cif­ic exemp­tions to mit­i­gate the report­ing bur­den on enti­ties already sub­ject to fed­er­al reg­u­la­tion or over­sight, and those unlike­ly to be used for illic­it activ­i­ties. As you can eas­i­ly deter­mine, this rule is tar­get­ed at small­er enti­ties, and is a true small busi­ness bur­den for sure.

A quick look at what enti­ties qual­i­fy­ing for any of the fol­low­ing exemp­tions are not required to file proves that:

  1. Pub­licly Trad­ed Com­pa­nies: Enti­ties with secu­ri­ties list­ed on a U.S. stock exchange are exempt due to exist­ing dis­clo­sure require­ments.
  2. Large Oper­at­ing Com­pa­nies: Enti­ties employ­ing more than 20 peo­ple full-time in the U.S., fil­ing tax returns demon­strat­ing more than $5 mil­lion in gross receipts or sales, and hav­ing an oper­at­ing pres­ence at a phys­i­cal office with­in the U.S.
  3. Cer­tain Reg­u­lat­ed Enti­ties: Includes banks, cred­it unions, insur­ance com­pa­nies, reg­is­tered invest­ment com­pa­nies, and bro­kers or deal­ers in secu­ri­ties, among oth­ers. These enti­ties are already sub­ject to strin­gent reg­u­la­to­ry require­ments and over­sight.
  4. Tax-Exempt Enti­ties: Orga­ni­za­tions rec­og­nized as tax-exempt by the IRS, includ­ing char­i­ties, are exempt from fil­ing.
  5. Sub­sidiaries: Enti­ties that are owned (at least 51%) by an exempt enti­ty are also exempt, pro­vid­ed the par­ent enti­ty’s infor­ma­tion is report­ed.
  6. Trusts: Most trusts are exempt unless they are cre­at­ed by fil­ing a doc­u­ment with a state office, which is uncom­mon for most trust struc­tures.

Additional Considerations

  • State-spe­cif­ic Enti­ties: Some enti­ties unique to spe­cif­ic states may or may not fall under the def­i­n­i­tion of a report­ing com­pa­ny. It’s essen­tial to con­sult legal guid­ance to under­stand how state-spe­cif­ic reg­u­la­tions inter­sect with CTA require­ments.
  • For­eign Enti­ties: For­eign enti­ties reg­is­tered to do busi­ness in the U.S. are required to file unless they meet one of the exemp­tion cri­te­ria.
  • Penal­ties for Non-com­pli­ance: Fail­ure to report or inten­tion­al­ly pro­vid­ing false infor­ma­tion can result in civ­il penal­ties of up to $500 per day and crim­i­nal penal­ties, includ­ing fines up to $10,000 and impris­on­ment for up to two years.

Under­stand­ing who must file under the Cor­po­rate Trans­paren­cy Act and who is exempt is cru­cial for ensur­ing com­pli­ance and avoid­ing penal­ties. Enti­ties should care­ful­ly review their sta­tus and con­sult with legal or com­pli­ance pro­fes­sion­als to deter­mine their fil­ing oblig­a­tions.

This proac­tive approach will not only align with fed­er­al require­ments but also con­tribute to the broad­er goal of enhanc­ing trans­paren­cy and com­bat­ing finan­cial crimes.

Step-by-Step Guide to Filing the Beneficial Ownership Information Report

Preparing for Filing

Before ini­ti­at­ing the fil­ing process, busi­ness­es need to gath­er nec­es­sary doc­u­ments and infor­ma­tion. This prepa­ra­tion ensures a smooth and effi­cient fil­ing process.

Collect Essential Information:
    • Employer Identification Number (EIN) or other applicable tax identification numbers.
    • Physical address of the business’s principal place of business.
  • Determine Your Reporting Obligation:
    • Review the cri­te­ria to con­firm if your busi­ness is required to file or if it falls under any of the exemp­tions list­ed by Fin­CEN.
  • Obtain a Fin­CEN ID (Option­al but Rec­om­mend­ed):
    • For ease of future fil­ings and updates, obtain­ing a Fin­CEN ID for the busi­ness and each ben­e­fi­cial own­er can stream­line the process.

Accessing the FinCEN Reporting Portal

  • Nav­i­gate to Fin­CEN’s Web­site:
    • Go to the offi­cial Fin­CEN web­site (www.fincen.gov) and locate the sec­tion ded­i­cat­ed to the Cor­po­rate Trans­paren­cy Act.
  • Select the Report­ing Option:
    • Click on the “File a Report” but­ton, which directs you to the ben­e­fi­cial own­er­ship infor­ma­tion report­ing sys­tem.

Filing the Report Online

  1. Start a New Report:
    • Choose the option to file a new report. First-time fil­ers should select “Ini­tial Report” to begin the process.
  2. Enter Busi­ness Infor­ma­tion:
    • Fill in the busi­ness details, includ­ing legal and DBA names, EIN, and the phys­i­cal address of the prin­ci­pal place of busi­ness.
  3. Request a Fin­CEN ID for the Busi­ness (Option­al):
    • If not already obtained, you can request a Fin­CEN ID for the busi­ness dur­ing this step. This ID facil­i­tates eas­i­er report­ing in the future.
  4. Iden­ti­fy Ben­e­fi­cial Own­ers:
    • Enter the required details for each ben­e­fi­cial own­er. If a ben­e­fi­cial own­er already has a Fin­CEN ID, you can use this instead of re-enter­ing all their infor­ma­tion.
  5. Iden­ti­fy Com­pa­ny Appli­cants (For Busi­ness­es Formed on or After Jan­u­ary 1, 2024):
    • Pro­vide details about the indi­vid­u­als who filed the for­ma­tion doc­u­ments for the busi­ness or who direct­ed the fil­ing.
  6. Review and Con­firm Infor­ma­tion:
    • Care­ful­ly review all entered infor­ma­tion for accu­ra­cy. Errors or omis­sions can lead to com­pli­ance issues and poten­tial penal­ties.
  7. Sub­mit the Report:
    • Once all infor­ma­tion is ver­i­fied, sub­mit the report. You will receive a con­fir­ma­tion and a track­ing num­ber for your records.

After Submission

  1. Down­load and Save the Con­fir­ma­tion:
    • Save a copy of the sub­mis­sion con­fir­ma­tion and track­ing num­ber for your records. This doc­u­ment is cru­cial for future ref­er­ence and com­pli­ance ver­i­fi­ca­tion.
  2. Set Reminders for Updates:
    • If any changes occur in the future, such as changes in ben­e­fi­cial own­er­ship or busi­ness details, remem­ber that you have 30 days to file an updat­ed report.
  3. Reg­u­lar­ly Review Com­pli­ance Require­ments:
    • Stay informed about any changes in report­ing require­ments or dead­lines by reg­u­lar­ly check­ing Fin­CEN’s web­site or sub­scrib­ing to updates.

Troubleshooting and Tips

  • Com­mon Issues: Some com­mon issues fil­ers encounter include tech­ni­cal glitch­es, miss­ing infor­ma­tion, or uncer­tain­ty about how to clas­si­fy own­er­ship inter­ests. Dou­ble-check all entries and ensure inter­net con­nec­tiv­i­ty is sta­ble before sub­mit­ting.
  • Tech­ni­cal Sup­port: If tech­ni­cal issues arise, use the sup­port options pro­vid­ed on Fin­CEN’s web­site. There are FAQs, user guides, and con­tact infor­ma­tion for tech­ni­cal sup­port.
  • Legal and Pro­fes­sion­al Advice: Con­sid­er con­sult­ing with a legal advi­sor, such as Robert W Law, or a pro­fes­sion­al expe­ri­enced in finan­cial com­pli­ance to ensure that your fil­ing meets all require­ments and accu­rate­ly reflects the own­er­ship struc­ture of your busi­ness.

(as of 2/3/24)

Laws

Cor­po­rate Trans­paren­cy Act

31 U.S.C. 5336 (Ben­e­fi­cial own­er­ship infor­ma­tion report­ing require­ments)

Reg­u­la­tions

31 CFR 1010.380 (excerpt from Ben­e­fi­cial Own­er­ship infor­ma­tion Report­ing Require­ments Final Rule)

Final Rules

Ben­e­fi­cial Own­er­ship Infor­ma­tion Report­ing Dead­line Exten­sion for Report­ing Com­pa­nies Cre­at­ed or Reg­is­tered in 2024
Use of Fin­CEN Iden­ti­fiers for Report­ing Ben­e­fi­cial Own­er­ship Infor­ma­tion of Enti­ties
Ben­e­fi­cial Own­er­ship Infor­ma­tion Report­ing Require­ments Final Rule

Ben­e­fi­cial Own­er­ship Infor­ma­tion Access and Safe­guards Final Rule

Pro­posed Rules

Ben­e­fi­cial Own­er­ship Infor­ma­tion Report­ing Dead­line Exten­sion for Report­ing Com­pa­nies Cre­at­ed or Reg­is­tered in 2024
Ben­e­fi­cial Own­er­ship Infor­ma­tion Report­ing Require­ments Advance Notice of Pro­posed Rule­mak­ing (ANPRM)

Ben­e­fi­cial Own­er­ship Infor­ma­tion Report­ing Require­ments Notice of Pro­posed Rule­mak­ing (NPRM)

Ben­e­fi­cial Own­er­ship Infor­ma­tion Access and Safe­guards and Use of Fin­CEN Iden­ti­fiers for Enti­ties NPRM