In December of last year, we sent out notice that most businesses will need to file statements identifying their primary owners. Subsequently, we have received additional information about filing deadlines. We also want to reiterate that penalties for failing to file are significant. If you are a principal owner of a business, you will need to be aware of this and act on it in a timely manner. Many business owners will wish to seek the advice of an attorney. Your AKM CPA will be happy to provide a referral if you need one.
In 2021 Congress passed The Corporate Transparency Act (“CTA”) to identify bad actors and fight various illegal activities, including laundering money and providing funding for terrorists. CTA specified that various business entities would need to file information with the Financial Crimes Enforcement Network (FinCEN) identifying their primary owners. The final regulations were recently issued and encompass more businesses than previously anticipated.
Who Is Affected
CTA filing requirements impact most business entities, including domestic and foreign privately held entities that are incorporated, organized, or registered to do business in a U.S. state.
The following entities are exempt:
- Companies required to report to the SEC
- Insurance companies
- Tax-exempt entities
- Companies categorized as banks, credit unions, brokerages, venture capital advisors, public utilities, inactive entities, accounting firms, and some others
- Large operating companies which meet all three of these requirements:
- 20 or more full time employees in the US
- $5,000,000 or more in gross receipts or sales in the US (as reported on prior year’s income tax return)
- Physical office premises in the US
Subsidiaries of exempt entities are also considered exempt. Note that exemption – or lack thereof – is not a one-time determination. An entity that subsequently fails to meet the above requirements loses its exemption, while an entity that later meets the stated requirements can gain exemption.
What Needs to Be Filed
FinCEN has not yet issued the required forms, but
- BOI: Beneficial Owner Information – this provides personal information of any individual who holds at least 25% of the entity’s assets and/or exercises substantial control over its activities. This will include:
- Full name as shown on passport
- Date of birth
- Home address
- Passport number and issuing jurisdiction
- Image of the document
- Company Applicant Information
Entities formed on or after January 1, 2024 will also need to provide responsible party information:- The person responsible for submitting the documents that established the entity (US entities) or the person submitting the initial registration document (foreign entities in the US)
- The person primarily overseeing the submission or formation or registration documents by an outside entity, such as a law or accounting firm
When Filings Are Due
- Entities formed prior to January 1, 2024: December 31, 2024
- Entities formed on or after January 1, 2024 and before January 1, 2025: 90 calendar days after actual or public notice that the entity’s creation is effective
- Entities formed after January 1, 2025: 30 calendar days from actual or public notice that the entity’s creation is effective
In New York, notice will typically come from the Secretary of State.
Note that this is expected to be an annual filing requirement.
What Else to Know – Penalties
There are severe penalties for non-compliance and providing false information. Reporting violations are subject to a fine as high as $10,000 and/or imprisonment for up to two years. Unauthorized disclosure or use violations are subject to a fine of up to $250,000 and/or 5 years in prison, in addition to the penalties for any other crime involved.
What’s Next?
Your AKM CPA will be happy to try to answer basic questions, but because this is a newly emerging issue with significant downside risks, we recommend that you confer with legal counsel.