Corporate Transparency Act and Beneficial Owner Reporting

I’ve put off writing something for my clients regarding the new Corporate Transparency Act reporting requirements for small businesses knows as CTA or BOI (Beneficial Owner Reporting) as I was waiting to see if it would be overturned or suspended by a court challenge. After a limited challenge, it seems like it is still rolling ahead and we’re past that break in period where it’s good to wait for the kinks to be worked out of a new system. That being said I’m starting the process for this summer to make my clients and readers aware of what it is, what deadlines are involved and what steps to use to complete it.

As a disclaimer, this article is intended to make you aware of BOI filing requirements, not as a guide. Rely on the agency guidance or a professional to get the actual reporting done.

What is it?
The CTA or BOI reporting system is a new tracking database being created by the US federal government to provide one unified system for law enforcement, banks, foreign governments and other agencies to be able to search for a business entity and determine who the owners and controllers of those companies are. It is administered by the FinCen branch of the US Treasury department; the same branch that administers Foreign Asset Tax Compliance and Bank Secrecy Act reporting.

Who has to file?
There is a shorter list of who does not have to file a BOI report than who does. Sole proprietors (Schedule C) businesses do not have to file, 501c non profits and businesses with 20+ full time employees do not have to file. The intent is to create a reporting entry for each small business listed with each secretary of state in the country.

When do I have to file?
The date you have to file depends on when your business was created. If it was created before Jan 1 2024 you have until the end of 2024 to file. If it was created during 2024 you have 90 days after creation to file and if it’s created in 2025 you have 30 days to file.

What are some of the specifics I should know?
This is a list of the points I came across while reviewing the FAQ and compliance guide put out by FinCen that stuck out to me as potential traps for filers, and good things to be aware of:

• There are two things to think about when filing a report, the first thing is “do I have to file a report” and then “what do I have to put in my report”. There are exemptions for each part, but the document doesn’t remind you about which exemption is which.
• Beneficial Owners aren’t just owners. They are owners of 25% of more of the business or just people who exhibit substantial control like corporate officers. So a beneficial owner can own 0% of a company...
• The filings is per entity registered with a secretary of state. So if you have 1 parent company and 6 subsidiaries that is 7 filings vs. your usual 1 tax return. However, if you just have 1 entity but it's registered in 5 different states you just have to file 1 return and use the information for the entities home state for your filing.
• Trusts need to be reported if they are in a state that requires them to be registered with the Secretary of State offices.
• Homeowners associations have to report unless they are a 501(c)(4), which they usually are not.
• Convertible Notes count as ownership for determining who has to be included in a report.
• The details that have to be reported for each beneficial owner are: Name, date of birth, residential address, drivers license or passport number and an uploaded image of said license or passport.
• A person can skip the above requirements if they register for a FinCen ID number. If they do so they just have to provide that ID for reporting, but guess what? Registering for that ID makes you obligated for life to report address and ID changes to Fincen within 30 days of each change or you get fined.
• The Drivers license or Passport cannot be expired, so if you have an reporting person that has an expired ID, or no ID the whole reporting process is derailed.
• If any of the information in the report changes; such as a reporting person moving to a new state, changing name, business address change, email or phone number change, a new report must be filed in 30 days. There is also no way to just specify what changed, the entire report has to be completed and submitted again.
• There is an exemption for inactive entities, but in the fine print is says that this only applies to entites created prior to Jan 1 2020. So it’s not an actual exemption.
• The inactive entity non exemption also creates a tax trap. Previously some people would create an LLC but not get an ID from the IRS until they started to do business. No more of that under BOI reporting as the report requires a federal tax ID to complete, and because you have to submit the BOI report in 30 days you also need to get a tax ID before that period is up.
• Last, the fines for not completing. Civil penalties are $500/day indexed for inflation, so they are already at $591/day since the legislation started. Criminal penalties add another fine of up to $10,000 and 2 years imprisonment. Unlike the IRS, there are no friendly systems for appealing these fines etc, your recourse is only through the federal courts. Furthermore, senior officers of an entity can be personally assessed these penalties versus the corporate entity directly.

Can you file this for me?
Yes. The FAQ mentions filings being done by attorneys and accountants and as your friendly neighborhood paperwork guy I would be glad to help you out. Priority will be given to existing bookkeeping and tax clients, but if you’d like to go through filing the form with me, go ahead and contact me and I’ll send you my calendar to book a time to complete it.

If you’d like to read the full set of FAQ and Guidelines straight from the source they can be found here https://www.fincen.gov/boi-faqs and https://www.fincen.gov/boi/small-entity-compliance-guide