As you prepare for the new year ahead, there’s a new reporting requirement that could impact you – the Corporate Transparency Act (CTA)!
What is the CTA? The CTA is an anti-money laundering law passed by Congress in 2021. The CTA requires defined businesses to report what’s called Beneficial Ownership Information (BOI). The new BOI reporting requirements aim to provide the government with resources to crack down on shell companies used by money launderers, criminals and others trying to illegally hide assets. It’s estimated that over 30 million business entities will be required to report BOI – including many types of farm businesses.
Failure to comply with the reporting requirements can lead to civil and criminal penalties! The Financial Crimes Enforcement Network (FinCEN), the agency enforcing the CTA, is taking this very seriously. A failure to report could result in up to $500 a day in civil penalties until corrected. Additionally, criminal penalties of up to two years imprisonment and $10,000 could result. These penalties apply to fraudulent reporting as well, for example providing a fraudulent ID for a beneficial owner.
Am I required to report my business’s BOI? Most companies that are business entities will need to report. The rule is that any business entity “… created by the filing of a document with a Secretary of State or any similar office in the United States” must report. Businesses that need to comply with BOI include, but not limited to:
- Limited Liability Companies, including single member LLCs
- S corporations
- C corporations
- Cooperatives
- Associations
- Limited Partnerships
- Certain trusts
If you are questioning whether or not you need to report, you should lean towards reporting. If an individual owns or controls 25% or more of a reporting company, they should file.
Who doesn’t have to report their business’s BOI? Sole proprietors and husband/wife proprietor businesses will not need to report. This is because proprietorship businesses are not separate entities from their owners, so no filing is necessary to create them. Other exceptions from reporting include:
- Heavily regulated companies (banks, credit unions, public utilities)
- 501(c)3 tax-exempt entities under the Internal Revenue Code
- Large companies that have:
- More than 20 full-time employees that are employed in the United States AND
- More than $5,000,000 in gross receipts or sales from sources within the United States on its previous-year’s tax return
For more details on reporting and a complete list of exceptions, see the Small Entity Compliance Guide (Beneficial Ownership Information Reporting | FinCEN.gov) and the FAQ’s (Beneficial Ownership Information Reporting | FinCEN.gov) on the FinCEN’s website.
What is a beneficial owner? A beneficial owner is an individual who either 1) has substantial control over a company or 2) owns 25% or more of the ownership interests of the company. Substantial control can be direct, including senior officers and any individual with the ability to appoint or remove a senior officer. However, substantial control can also be indirect. Someone will be considered a beneficial owner if they are an important decision maker for the company.
The regulations seek to identify the people having control and influence over decisions, regardless of whether or not those people have their names on the shareholder list.
When do we need to file and where will filing occur? Filing will be done online via FinCEN’s website. There will be no fee. As of the writing of this article, the form is still under development. Information about the form will eventually be posted on the FinCEN website (Beneficial Ownership Information Reporting | FinCEN.gov).
For businesses in existence as of December 31, 2023, the BOI filing can be made starting January 1, 2024. The deadline to file is by January 1, 2025. This gives current companies one full year to make their initial BOI filing.
Companies that are created on or after January 1, 2024 must file within 90 days of receiving notice that they are registered.
The AICPA and over 50 affiliated organizations recommended in a letter to the Treasury’s FinCEN that the agency extend the effective date for reporting by one year to help smooth out the filing process as it gets underway. On December 12, 2023, the House of Representatives passed a bill that would approve these items – the bill is now in front of the Senate awaiting further Congressional consideration.
Important to note is that after the initial BOI report is made, any changes to beneficial ownership information need to be filed within 30 days after the date of the change. Changes that need to be reported include appointing a new CEO, or someone acquiring more than 25% of the company through a sale or gift.
What information will I need to report? The information that will need to be reported is:
- The company’s legal name any trade names (“doing business as” and “assumed.03s
- An identifying number from an accepted ID document (passport, U.S. driver’s license), name of the issuing state or jurisdiction, and an image of the ID document
Companies that are registered on or after January 1, 2024, will additionally need to supply information about the company applicants. Company applicants are individuals who directly filed the document to register the company (often attorneys) and the individual primarily responsible for directing the filing.
Closing: The CTA’s reporting requirements will impact many companies and will likely require a significant amount of information gathering and analysis. We recommend that you consult with your legal counsel to determine your reporting obligations.
GreenStone’s tax and accounting team at your local branch is also available to answer questions. GreenStone offers a full array of accounting services for farmers and other business owners, and we are ready to assist you with your year-end reporting needs!
* Please note that some dates can vary by County, especially in Wisconsin. Please check with your Specialist for specific dates if you are unsure.
To view the winter 2024 issue of Partners magazine in its entirety, click here.
