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New Corporate Transparency Act Puts New Reporting Requirements on Business Owners and Landlords

 

On New Years Eve at midnight, maybe while you were toasting with family and friends, a new law quietly took effect.  It is a federal law that affects a lot of businesses, called the Corporate Transparency Act and the resulting Beneficial Ownership Reporting Requirements. We will explain what it is, why it came about, who it affects and what you should do about it.

 

What is the Corporate Transparency Act?

 

The Corporate Transparency Act, or CTA as we will refer to it here, was originally passed in 2020 but it did not take effect right away because regulations had to be issued on how the law was to be implemented.  The purpose of the law is to help the government pursue financial corruption such as funding terrorist organizations, money laundering, tax fraud, etc.  Many of the organizations that are involved in this type of activity use shell corporations to hide the real owners or others who are receiving illegal funds.

 

The CTA gives authority to the Financial Crimes Enforcement Network (FinCEN) to build a database with information of ownership of smaller business entities.  Shell companies are likely to be smaller business entities, although many are also legitimate businesses, maybe like your business. This new database is strictly for the use of law enforcement, government regulators and intelligence agencies and is not available to the public.  Financial institutions such as banks will be able to access this information with the consent of their customer, so expect to see that along with your next business loan application.

 

Where do you suppose the information for this new database is going to come from?  Why, you, of course.  All companies that are not exempt are now going to have to file a report.  This report will list detailed information on who the “beneficial owners” of the company are.

 

 

Existing companies have until the end of 2024 to file. New companies must file within 90 days. Changes in beneficial ownership must be reported within 30 days.

 

 

 

 

Why should I care?

 

If you are the person required to file and don’t do it, you will be subject to severe penalties both civil and criminal as follows:

• Civil fines of $500 per day
• Criminal fines up to $10,000 and/or imprisonment

 

Now that I have your attention, read on to determine if this applies to you.

 

What companies are subject to reporting?

 

Any entity that was created by filing a document with the Secretary of State (or similar office) unless they meet specific exemption requirements.  That includes:

 

• Corporations
• LLCs (Limited Liability Company)
• LLPs (Limited Liability Partnership)
• Some trusts
• Foreign entities that registered to do business in the United States

 

This includes single member LLCs that are taxed as sole proprietorships, and rental properties that are in LLCs.  It also includes law firms.

 

Here is the list of who is exempt from having to file:

 

• Larger companies that meet ALL of the following three requirements:
  • Employ more than 20 people (who work at least 30 hours per  week)
  • Revenue of more than 5 million (per prior year tax return)
  • Physical presence in the U.S.
• Charitable organizations
• Publicly traded corporations
• Heavily regulated companies
  • Banks and credit unions
  • Certain financial, insurance and accounting firms

 

What is a “Company Applicant”?

 

The Company Applicant is the person who is responsible for filing the beneficial reporting information.  This is one of two people:

 

1. The person who filed the document(s) that create the entity (business) or the document that registers the entity to do business in the United States.
2. The person who directed another to file those documents (ie they paid an attorney to file the documents.)

 

Who is a “Beneficial Owner”?

 

A Beneficial Owner is someone who benefits from the company whose information needs to be reported.  A person is a beneficial owner if they meet the following criteria:

 

 

• Someone who owns (or controls) at least 25% or more of the ownership of the company OR
• Someone who directly or indirectly exercises “substantial control” over the company, which is defined as follows:
  • Senior officers
  • Authority to appoint or remove a senior officer or a majority of the board
  • A person who has influence over any of the following:
    • Major expenditures
    • Borrowing
    • Extending credit
    • Investments
    • Selling (or dissolving) the company
    • Reorganization of the company
    • Sale or transfer of any assets
    • Identifying (or terminating) business lines, divisions or other ventures
    • Entering into (or terminating) contracts
    • Compensation of senior officers
    • Amending the company’s governing documents
    • Issuance of ownership rights

 

 

What is the information to be reported?

 

Information about beneficial owners:

• Name & address
• Date of birth
• Identification number such as a driver's license or valid U.S. passport (including jurisdiction and image)
  • If the beneficial owner does not want to give you this information, they can obtain an identification number from FinCen.

 

 

What do you need to do?

 

You need to file the report in one of the following ways:

 

1. An attorney can do it for you
2. An accountant or your tax preparer would be the natural person to do this. However they should NOT do it for you until accountants have assurances from the state that preparing it is NOT the practice of law.  To date, I’m not aware of any states that have given guidance on this.
3. You can file it yourself at: https://boiefiling.fincen.gov/

 

More information, including FAQs and flowcharts, can be found here: https://www.fincen.gov/boi-faqs#:~:text=If%20you%20are%20required%20to,boiefiling.fincen.gov).