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Posted on January 10, 2024 by Kelly Rutledge

A few years ago, Congress passed the Corporate Transparency Act, 31 U.S.C. 5336 (“CTA”), which established certain required information filings with the U.S. Treasury Financial Crimes Enforcement Network (“FinCEN”).  The purpose of the CTA is to create a national database of companies in the U.S. that identifies the people behind the companies (both owners and those in control of the entities) in an effort to identify, prevent, and punish criminals and criminal networks that participate in money laundering and other financial crimes.  While the new federal database will not be of public record, it will be accessible to a variety of federal law enforcement and other agencies (including the IRS).

In reading the previous paragraph, you may be wondering, what does this mean for you and your business?  Currently, this means any entity with state filed formation documents (primarily corporations, LLC’s and limited partnerships) will need to file.  The CTA mandated filing for your company is as follows:

• Beneficial owners who own or control 25% or more of the ownership (including community property ownership) must file a Business Ownership Report through the Beneficial Ownership Secure System (BOSS) eFiling System beginning January 1, 2024. For entities that already exist by that date, their initial reports are due by January 1, 2025 although it is recommended that filings be made well in advance of that date.  As of now, there are no extensions available.  New entities (i.e. formed in 2024) must file within 90 days from the date of the company’s creation.  Post 2024 new entities (those formed after 2024) will have 30 days from the company’s creation to file their initial BOI report.
• Even if you are not an owner in a reporting entity, if you exert “substantial control” over any such entity (which might include acting as an officer, director, manager, chief financial officer, general legal counsel or trustee) then you may be deemed to directly or indirectly exercise substantial control over the entity. If so, then you would be responsible for filing a report for the entity with FinCEN.

Even if an entity has only one owner and that entity is ignored for federal income tax purposes (such as a single-member LLC or an LLC owned by just a married couple), that entity will still have to file reports with FinCEN.  Consequently the new law will affect virtually all small family businesses, including LLCs and other entities designed only to hold real estate.  However, there are a few limited exemptions, the most important of which are listed below:

• Large operating companies, which is defined as an entity that employs more than 20 full time employees in the U.S., has an operating presence at a physical office within the U.S., and filed a federal income tax or information return in the U.S. for the previous year demonstrating more than $5,000,000 in gross receipts or sales (excluding receipt/sales from sources outside the U.S.).
• Subsidiaries that are controlled or wholly owned, directly or indirectly, by certain exempt entities are also exempt.
• Certain financial institutions or certain issuers of securities in heavily regulated industries (e.g., banks, credit unions, broker-dealers, money services businesses registered with FinCEN, and issuers registered with the U.S. Securities and Exchange Commission).
• Tax-exempt 501(c) entities.
• Inactive entities that existed before January 1, 2020, which are (i) not engaged in active business, (ii) not owned by a foreign person, (iii) have not had a change in ownership in the last 12 months, (iv) have not sent or received funds greater than $1,000 in the last 12 months, and (v) do not hold any assets.

As is clear from the limited exemptions above, most private and family businesses and their owners will be “Reporting Companies” which will have to file reports with FinCEN.  It is also important to note that the above exemptions are not permanent.  If an entity initially qualifies for one of the above exemptions but subsequently falls short, it must then file a beneficial owner report.

If your company will be required to file reports with FinCEN, it is helpful to know what information will be required to complete the initial filing.  Here are requirements for both the company and the owners:

• The Reporting Company will be required to provide the following information:
• Full legal company name;
• Any trade name or assumed name (DBA) owned by the Company;
• Current address (street address only; P.O. boxes not allowed);
• Jurisdiction of formation; and
• Federal taxpayer identification number.

Each beneficial owner of a Reporting Company is required to provide the following information:

• Full legal name;
• Date of birth;
• Current residential or business address (street address only; P.O. boxes not allowed); and
• An image including the unique identifying number of either a current US passport, driver’s license or state, local or tribal ID.

The initial FinCEN report only needs to be filed once for each Reporting Company but must be updated within 30 days if there is a change in ownership, management or control, e.g., there is new ownership, a beneficial owner or manager has a new home address or changes their name (marriage, etc.), or a new manager or member is named for an LLC.

So, what happens if you simply ignore these requirements?  Based on the information available, it appears that FinCEN intends to heavily enforce compliance with the CTA.  Failure to comply can lead to a civil penalty of $500 per day and imprisonment for up to 2 years and/or a $10,000 fine.

Unfortunately, the CTA has created a significant filing burden on most private business entities in the United States.  If you would like assistance filing as required, or if you are not sure whether one of the exemptions may apply to you, the team at Lasher is available to assist.  Lasher has developed a secure, efficient system for filing the legally required Beneficial Ownership Information (“BOI”) on the Beneficial Ownership Secure System (“BOSS”) platform, meaning you can rest at ease knowing that your company is compliant, and your information is secure.

If you need assistance, or have questions, regarding the FinCEN reporting requirements, the FinCEN Compliance Department (part of our Corporate and Business Team) is here to help.

If you have any questions, please contact Kelly Rutledge.