For those of you that are loyal readers of this Partners magazine, you may be wondering - why another article on the Corporate Transparency Act (CTA)?
The answer is: it is new, there have been some updates to it, and many impacted business owners still do not understand it.
Near the end of 2023, the National Federation of Independent Business completed a survey in which 90% of small businesses responded that they were completely unaware of the new CTA Beneficial Ownership Information (BOI) requirements. 90%!
What is the purpose of the CTA?
The CTA was enacted as part of the Anti-Money Laundering Act in the 2021 National Defense Authorization Act. The CTA is intended to combat money laundering, terrorism financing, organized crime, and other financial crimes by requiring many corporations, limited liability companies (LLCs), and other entities formed or registered in the U.S. to timely report information about their beneficial owners and company applicants to the Financial Crimes Enforcement Network (FinCEN). The CTA authorizes FinCEN to maintain a centralized, nonpublic database of BOI, accessible to law enforcement agencies, national security agencies, and financial institutions.
Who is required to comply?
The CTA focuses on business entities that have:
- Fewer than 20 full-time employees
- An operating presence in the U.S.
- $5 million or less in gross receipts
Business entities that must report are defined as those “… created by the filing of a document with a Secretary of State or any similar office in the United States.” Businesses that need to comply with BOI include, but are not limited to:
- Limited Liability Companies, including single member LLCs
- S corporations
- C corporations
- Cooperatives
- Associations
- Limited Partnerships
- Certain trusts
What has changed since January’s Partners article?
On March 1, 2024, a federal district court in the Northern District of Alabama concluded that the CTA BOI reporting requirements were unconstitutional and urged FinCEN not to enforce the CTA against members of the National Small Business Association, the plaintiffs in the case. FinCEN indicated it would comply with the court order regarding members of the National Small Business Association. FinCEN did also file a notice of appeal in the case. More legal challenges are likely!
On April 3, 2024, the Association of International Certified Professional Accountants (AICPA) wrote a letter to the director of the FinCEN in which the Alabama court case was cited – requesting that the FinCEN suspend the enforcement actions of the CTA BOI until one year after the conclusion of the above-mentioned court case and any other related court cases.
At the end of April 2024, U.S. Representative Warren Davidson (OH-08) and U.S. Senator Tommy Tuberville (AL) introduced a bill to repeal the CTA.
On May 30, 2024, the House Small Business Committee was scheduled to hold a hearing on the CTA BOI.
Be wary!
FinCEN issued a warning that it was aware of fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA.
FinCEN noted that the fraudulent scams include:
- Correspondence requesting payment. There is NO fee to file BOI directly with FinCEN. FinCEN does NOT send correspondence requesting payment to file BOI. Do not send money in response to any mailing that claims to be from the FinCEN or another government agency.
- Correspondence that asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are likely fraudulent. Do not click any suspicious links or attachments or scan any QR codes in emails, on websites, or in any unsolicited mailings.
- Correspondence that references a “Form 4022,” or an “Important Compliance Notice.” This correspondence is fraudulent. FinCEN does not have a “Form 4022.” Do not send BOI to anyone by completing these forms.
- Correspondence or other documents referencing a “US Business Regulations Dept.” This correspondence is fraudulent; there is no government entity by this name.
Go directly to the FinCEN’s website to complete your BOI information. Only work with reputable service providers if you are receiving assistance in the BOI process. Be diligent with your personally identifiable information!
What Is Next?
Entities subject to the Jan. 1, 2025 filing date might wish to delay compliance with reporting until later in 2024 based on many of the pieces of information detailed in this article. However, all entities should work with their advisers to be prepared to comply by the due date.
You should target to completely understand what is necessary to complete the CTA BOI requirements and be ready to file as soon as possible, even if you do choose to wait until later in the year to complete the filing. Willful noncompliance with the CTA BOI reporting requirement still can result in criminal and civil penalties of $500 per day up to a maximum of $10,000, and up to two years of jail time.
Updated information about the CTA can always be found on the FinCen website at https://www.fincen.gov/.
To view the summer 2024 issue of Partners magazine in its entirety, click here.
