New Reporting Requirements for Corporations: The Federal Corporate Transparency Act
The Corporate Transparency Act (CTA) went into effect January 1, 2024, and was created in response to the need to safeguard the public and the financial system from illicit use, combat money laundering and related crimes including terrorism, human and drug trafficking, and other fraud, and to generally promote national security.
Filing Deadlines
Existing companies created or registered to do business in the U.S. before January 1, 2024, must file initial Beneficial Ownership Information Reports (BOI Reports) with the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. Any company created or registered in the U.S. in 2024 has 20 calendar days to file after receiving actual or public notice that the creation or registration is effective.
Exemptions from Reporting
In recognition of existing filing requirements, the law exempts 23 different categories of entities from these broad categories:
- Any large entity that has a physician location operating in the U.S., employs more than 20 FTE’s, and has filed a federal tax return for the previous year indicating gross receipts in excess of $5,000,000
- Any entity (subsidiary) owned solely by one or more exempt entities (note some limitations)
- Governmental and non-profit entities which includes entities assisting a tax-exempt entity and includes many operating in the healthcare arena.
- Certain inactive entities as defined by the CTA
- Entities already registered with SEC or FinCEN
Information to be Filed
Beneficial ownership information is not an annual requirement. A report only needs to be submitted once unless information needs to be corrected or updated. Generally, reporting companies must report four items of information about each beneficial owner: name; date of birth; address; and the identifying number and issuer of either a non-expired U.S. driver’s license, a non- expired U.S. passport, or a non-expired identification document issued by s State (including a U.S. territory or possession), local government or Indican tribe. If none of those documents are in existence or available, a non-expired foreign passport may be used. An image of the document must be submitted with the report. The company is also required to submit information about itself including name and address and, for companies created on or after January 1, 2024, information about the individuals who formed the company. Reporting requires a FinCEN Identifier, a unique ID obtained from FinCEN. This is important because once the identifier is obtained it can be used in lieu of the otherwise required information. While the information still must be updated according to the provisions of the CTA, the identifier may be used, for example, if an individual chooses not to provide identifying information to a Reporting Company.
Risk of Failing to Report
Willfully failing to report complete or updated information required by the CTA or providing false or fraudulent information results in a violation of the CTA. Such action can be direct or indirect, and more than one person could be liable for the failure to report in an entity. Penalties include up to $500 each day of a continuing violation and a fine up to $10,000 and prison time of up to 2 years or both. Penalties may be avoided by corrections made within 9 days of the original inaccurate or incomplete BOI Report unless there was intent to provide less than accurate information and actual knowledge of the inaccuracy.
