Corporate Transparency Act
The Corporate Transparency Act (CTA) is a federal law that took effect at the start of 2024 and implements additional reporting requirements for non-exempt business entities to follow. The CTA is being developed in real-time in the courts, as legal actions have been taken against the federal law. As such, confusion is common among business owners regarding its impacts.
Along with our tax consulting services, we also assist business owners with the CTA’s filing requirements – specifically beneficial ownership information reports (BOIR).
What is the Corporate Transparency Act?
The CTA is a federal law that requires most businesses to provide the U.S. Department of Treasury with a beneficial owner information report – or BOIR. The Financial Crimes Enforcement Network (FinCEN) is the regulatory arm inside the Department of Treasury responsible for gathering BOIRs and enforcing filing deadlines. According to FinCEN, beneficial owner information reports are necessary to identify shell companies and companies acting as a front for illicit activities, including human and drug trafficking.
What are the Filing Requirements Under the Corporate Transparency Act?
Initially, the CTA put in place a January 1, 2025 deadline for BOIRs, but this date has been extended indefinitely at the time of publishing this page due to legal actions taken in response to the CTA.
Before the filing deadline, all non-exempt business entities are required to submit the following in their BOIRs:
- The full legal name of all beneficial owners
- Each beneficial owner’s legal address
- Each beneficial owner’s date of birth
- A government-issued ID number associated with each beneficial owner, such as a passport or driver’s license
- An image document of the ID used to satisfy the ID number requirements
This information must also be provided for any person who files the BOIR for the company. Further, information about the entity itself – full legal name, address, jurisdiction of formation and taxpayer identification number – must be included in the BOIR.
What Does it Mean to be a Beneficial Owner?
All of the company’s beneficial owners must be included in the BOIR, but it isn’t always clear exactly who qualifies under FinCEN’s definition, which looks like this:
- Anyone with at least a 25 percent equity stake in the business is considered a beneficial owner.
- Anyone who has “substantial control” over the company’s operational or management decisions is also a beneficial owner.
Under the second definition, it’s possible that C-suite executives, directors and even some upper-level managers may be considered a beneficial owner in some organizations. A tax and business consulting expert can clarify who should be included in a BOIR to ensure all reporting requirements are met.
What Businesses are Exempt from the CTA’s Requirements?
Certain entities are not required to file BOIRs, including:
- Banks, credit unions and securities reporting agencies
- Government institutions
- Inactive entities
- Large operating entities – those with at least 20 full-time U.S. employees
- Insurance companies
- Public accounting firms
Many of the above entities – financial, government and insurance, for example – are already tightly regulated by laws on the books, making BOIRs redundant in their cases.
What are the Penalties for Not Filing a BOIR?
The penalties for failure to file are steep and may potentially involve prison time, so violations are treated as possible criminal offenses.
Specifically, the fines for failure to file start at $500 a day, every day and for each violation. Violations may also be subject to up to two years of prison time.
How do Businesses File Their BOIRs?
FinCEN has provided an online submission portal through which companies can file their beneficial owner reports. You’ll need all the required information before beginning the process, and many are choosing to start the process early and with the help of a knowledgeable tax consulting expert.
Specifically, the fines for failure to file start at $500 a day, every day and for each violation. Violations may also be subject to up to two years of prison time.
Our Team Can Guide Your Organization Through the CTA and BOIR Filing
The Corporate Transparency Act is a matter of debate among business owners and the courts. In fact, the Fifth Circuit has released two rulings on the CTA in just the last month – one placing an injunction on the CTA and removing its enforcement power (Along with BOIR reporting requirements) and a second ruling putting BOIR requirements back in place. In short, the CTA will likely be a developing law as the courts sift through any legal actions launched against it.
For now, it’s important for business owners to determine their approach to filing beneficial owner information reports. Steep penalties are possible for failure to file, even if the CTA’s reporting rules seem like government overreach to many.
If your organization has yet to file its BOIRs and means to do so, the Evident Pros team can expedite the process. We can help your organization identify who should be included in the BOIR, and we can prepare BOIRs for our clients, submitting them to FinCEN directly.
If you’re unsure where to begin or don’t have time for more paperwork, schedule a consultation with us and we’ll develop a plan of action for your business.
