A lot of people have heard about the Corporate Transparency Act (Act). Under this federal act, certain businesses are required to report information on beneficial ownership. But what does it all mean?
Why the Corporate Transparency Act was enacted
The Act was enacted in 2021, but the reporting requirements did not go into effect until January 1, 2024. The purpose behind the Act is to prevent criminals from engaging in crimes such as financial fraud and money laundering, web defacement where scammers impersonate businesses online, Trademark ransom, tax fraud, terrorism, and more. It is also expected to help reduce the use of shell companies used to covertly commit such crimes.
What is a Beneficial Owner?
A "beneficial owner" is a person who exercises substantial control over the company, or owns at least 25% of the company's ownership interests.
Who must report?
Companies established before January 1, 2024, have until January 1, 2025, to file their initial Beneficial Ownership Information (BOI) reports. Companies established in 2024, have 90 calendar days to file their initial BOI reports. Many small corporations and LLCs in the U.S. will have to comply with the reporting requirements. There are some business that are exempt, and you can check your exemption status online.
Who do companies have to report to?
Companies required to file BOI reports, must do so through the United States Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). FinCEN has a secure filing system for submitting BOI reports.
What must companies report?
Basic information about reporting companies must be submitted to FinCEN:
1. Legal Name
2. Any trade names or D/B/As (doing business as)
3. The current street address of the principal place of business in the U.S.
4. State of formation or registration
5. Taxpayer Identification Number (TIN), or if a foreign reporting company without a TIN, the tax identification number issued by a foreign jurisdiction along with the name of the issuing jurisdiction.
There is no fee for filing the BOI report.
For more information on this topic, visit FinCEN Small Business Resources.
Note: On March 1, 2024, a federal district court in the Northern District of Alabama entered a declaratory judgment for the case of National Small Business United v. Yellen. The court ruled that the Corporate Transparency Act is unconstitutional as it exceeds the Constitution's limits on Congress's power. The Justice Department filed a Notice of Appeal on March 11, 2024. As this issue continues, companies who were not parties to the case are to continue complying with BOI reporting to FinCEN.