New Federal Reporting Requirements for
Most U.S. Businesses,
Including Yours!
by Tina Azarvand, Esq. and Claudia Vasquez
On January 1, 2021, the Corporate Transparency Act (“CTA”) was enacted by Congress. The CTA is the largest anti-money laundering legislation passed since 2001. The CTA created a new reporting requirement for businesses, which began on January 1, 2024, requiring any formally established business that is not subject to an exemption to file a Beneficial Owner Information Report (BOIR) with the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) Bureau. These reporting requirements are estimated to require approximately 30 million businesses to report under the CTA, and yours is probably one of them.
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30 MILLION BUSINESSES
The CTA applies to LLCs, Partnerships, Corporations,
and similar entities
PENALTY
up to $500 for each day that the violation continues, or criminal penalties, including imprisonment for up to two years.
or criminal penalties including imprisonment for up to two years
and/or a fine of up to $10,000.
DEADLINES
Businesses in existence
before January 1, 2024
have until December 31, 2024
to report.
For businesses established
on or after January 1, 2024, there is a 90-day deadline to file.
Businesses formed in 2025 onward will only have 30 days to report
What is the Corporate Transparency Act (CTA)
& How Does it Impact My Business?
The CTA is designed to combat money laundering, terrorism financing, and other illicit activities by requiring disclosure. This information includes the identities of individuals who directly or indirectly own or control a significant interest in a business.
While most businesses may not be associated with money laundering or terrorism financing, the CTA’s reporting requirements are broadly applied and include most industries. As a business owner, you may be subject to these new requirements if your business is structured as a corporation, limited liability company (LLC), partnership, or similar entity.
Who
Must
File?
DOMESTIC REPORTING
COMPANIES
Corporations
Limited Liability Companies, and other entities created by filing a document with a Secretary of State or any similar office in the United States
Generally, any business, other than a Sole Proprietorship, must file absent an exemption.
FOREIGN
REPORTING
COMPANIES
Corporations, and Limited Liability Companies formed under the law of a foreign country that has registered to do business in the United States by filing a document with a Secretary of State or any similar office in the United States
THE TWENTY -THREE EXEMPTIONS
The majority of exemptions to the Corporate Transparency Act apply to heavily regulated industries. The full list of the twenty-three exemptions includes:
-
Governmental Authority
-
Bank
-
Credit Union
-
Depository
-
Institution Holding Company
-
Money Services Business
-
Broker or Dealer in Securities
-
Securities Reporting Issuer
-
Securities Exchange or Clearing agency
-
Investment Company or Investment Adviser
-
State-licensed Insurance Producer
-
Commodity Exchange Act Registered Entity
-
Other Exchange Act Registered Entity
-
Venture Capital Fund Adviser
-
Insurance Company
-
Accounting Firm
-
Public Utility
-
Financial Market Utility
-
Pooled Investment Vehicle
-
Tax-exempt Entity
-
Entity assisting a tax-exempt entity
-
Large Operating Company
-
Subsidiary of certain exempt entities
-
Inactive entity
It is important to note that each respective category has its own requirements that must be met to claim the correlating exemption. For example, two of the most common exemptions are Large Operating Companies and Inactive Entities, each of which have very specific requirements.
LARGE OPERATING COMPANY
-
A Domestic Operating Business may be deemed a Large Operating Company if:
-
The entity employs more than 20 full-time employees in the United States; and
-
The entity has an operating presence at a physical office within the United States; and
-
The entity filed a Federal income tax for the previous year demonstrating more than $5,000,000 in gross receipts or sales; and
-
The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances).
INACTIVE
ENTITY
-
A Domestic Operating Business may be deemed an Inactive Entity if:
-
It was in existence on or before January 1, 2020; and
-
It is not engaged in active business; and
-
Is not owned by a foreign person; and
-
Has not changed owners in the last 12 months; and
-
Has not sent or received funds in an amount greater than $1,000
-
in the last 12 months; and
-
Does not hold any assets.
What Deadlines Are Vital?
Businesses in existence before January 1, 2024 have until December 31, 2024 to report.
within 90 days of formation
For businesses established on or after January 1, 2024, there is a 90-day deadline to file (from the time of actual/public notice that their company’s creation/registration is effective).
Businesses only need to file their initial BOIR, and then supplement information only when there is a change with respect to required information previously submitted to FinCEN concerning the Reporting Company or its Beneficial Owners. Businesses formed after 2024 (2025 onward) will only have 30 days to file. Corrected reports must be submitted within 30 days of the date of any changes or inaccuracies.
Willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision/attempt to provide false or fraudulent beneficial ownership information may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000.
Recent Developments
On March 1, 2024, a U.S. District Court judge in Alabama ruled that the CTA is unconstitutional. However, on March 4, 2024, FinCEN issued a notice addressing the ruling, stating that FinCEN intends to enforce the CTA against all reporting businesses, except for the plaintiffs named in the above-referenced action. On March 11, 2024, the federal government appealed the ruling. With the ongoing litigation, it is of the utmost importance to monitor the status of the CTA for any new developments that may impact your reporting requirements and to ensure you are complying with the CTA.
