Congress passed the Corporate Transparency Act (CTA) in 2021, which requires most U.S. businesses to report beneficial ownership information to the federal government. FinCEN has since adopted a final rule which has officially enacted the CTA in 2024. The purpose behind the CTA is to create a national registry of beneficial ownership information which will help combat money laundering, tax fraud, and other illicit activities.

Who Needs to Report?

An entity must file Beneficial Ownership Information Reports (BOIRs) if they fall into the definition of a reporting company and do not qualify for an exemption. There are two types of reporting companies. Domestic reporting companies include corporations, LLCs, or any other entity that is created by the filing of a document with an office of a state.  Foreign reporting companies include privately formed entities and any other entity formed in a foreign country that is registered to do business in the United States.

The rule provides 23 exemptions generally applicable to heavily regulated companies.  For example, banks and insurance companies are exempt from filing BOIRs. FinCEN also included large operating companies as an exempt entity. Large operating companies must have at least 20 full-time employees in the U.S., a physical office in the U.S., and have previously shown more than $5 million in gross receipts or sales on their previously filed federal tax returns. A full list of the exemptions can be found here.

If you are unsure whether you need to file a BOIR, this company check tool can help provide further information.

What Must Be Reported?

The information that must be reported includes company information and beneficial owner information. Company information includes the name of the company, any trade names, address of the company, and its TIN. Beneficial owner information includes legal name, date of birth, current residential or business address, and an identifying number from an acceptable identification document such as a passport or. U.S. driver’s license. Additionally, companies created or registered after January 1, 2024, will need to report their company applicants, meaning the individuals who directly file the BOIR or register the company. If more than one person is involved in the filings, the company is required to list only the person primarily responsible.

When Must You Report?

Any entity that must report and was formed on or after January 1, 2024, must file a BOIR within 90-days from the date of formation. For any entity that must report and was formed before January 1, 2024, must file a BOIR before January 1, 2025. Beginning in 2025, any entity that is formed must file a BOIR within 30 days of its formation.

Penalties for Non-Compliance

Willfully failing to report complete or updated beneficial ownership or willfully providing false beneficial ownership is a violation of the CTA. Any individual who violates the CTA is liable for civil penalties of up to $500 per day for as long as the violation continues. Additionally, the individual is liable for criminal penalties of imprisonment of up to two years and fines of up to $10,000.

Any individual who reports information in good faith and later finds out inaccurate information has been reported has 90 days from the date of filing to correct the information before they face any liability.

Knowingly disclosing beneficial ownership or using beneficial ownership information without permission is punishable by civil penalties of $500 per day for as long as the violation continues. Additionally, the individual is liable for criminal penalties of imprisonment of up to ten years and fines of up to $500,000.

How Do You Report?

FinCEN has launched an e-filing website, which can be found here. There is no fee associated with filing a BOIR.

For more information on BOIR reporting, you can review FinCEN’s Beneficial Ownership Information page.

Questions of Constitutionality

On March 1, 2024, the CTA was deemed unconstitutional by a federal district court in the Northern District of Alabama. The reasoning for this decision is that the Commerce Clause, the Necessary and Proper Clause, the taxing power, and the U.S. government’s authority over national security and foreign affairs do not provide adequate authority for the CTA. In this decision the court did not issue a nationwide injuction barring the U.S. government from enforcing the CTA. However, the U.S. government is enjoined form enforcing the CTA as to the named plaintiffs.

On March 11, 2024, the U.S. government filed an appeal to this decision, and on the same day FinCEN has stated that they will continue to implement the CTA while complying with the court’s order.

The Attorneys at Bull Blockchain Law are closely monitoring the case and will provide updates as they come.

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