By Katrina Brekke

 

By January 1, 2025, all business entities registered in the United States will be required to disclose their entity information and all beneficial owners to the Department of the Treasury, in a new crime-fighting procedural strategy outlined by the Corporate Transparency Act. This reporting requirement is new, mandatory, and subject to penalties and fines of over $500 per day for non-compliance.

This post will provide more information about the history and background of the new reporting requirement, outline compliance procedures, and explain how DHA can help.

A BRIEF HISTORY:

The Corporate Transparency Act (CTA) was put in place by Congress in 2021, as part of the National Defense Authorization Act, an amendment to the existing Bank Secrecy Act of 1970. The CTA was enacted to close a perceived information gap related to business ownership and finance records, and to prevent individuals with malicious intent from hiding or benefiting from facilitating illegal financial operations. The CTA was formed to combat illicit financial activities such as tax fraud, money laundering, corruption, and the exploitation of shell and front companies, all of which pose a risk to national security.

The primary goal for the CTA is to establish a database of beneficial ownership information (BOI) that will make it easier to find and identify any corrupt financial practices and ensure national security. This new reporting requirement applies to the vast majority of entities that were created or registered to do business in the United States, with few exceptions.

The BOI reporting requirement partners with the Financial Crimes Enforcement Network (FinCEN), a bureau of the US Department of the Treasury, to collect specific identifying information about the beneficial owner(s) of any applicable entities to the eventual database intended by the CTA.

WHO HAS TO REPORT:

  • Domestic reporting companies: any corporation, limited-liability company, or business entity that was created in the US by filing a document with a secretary of state or any similar office under the law of a state or Native American tribe
  • Any foreign reporting company that was registered to do business in any US state or Native American tribe by such a filing

WHO DOES NOT HAVE TO REPORT:

WHO IS CONSIDERED A BENEFICIAL OWNER:

According to the CTA, a beneficial owner is someone who directly or indirectly has a significant ownership stake in the company. This is a person with major influence over the reporting company’s decisions or regular operation, with at least 25% ownership of the company’s shares or a similar level of control over the company’s equity or function.

WHAT INFORMATION MUST BE REPORTED FOR COMPLIANCE:

There are slight variations of the reporting requirements for entities registered or established prior to January 1, 2024, versus those registered in 2024 and beyond. All reporting companies must provide the entity’s legal name and trademarks, the US address or operational location, the EIN or TIN for the entity, and the jurisdiction where the entity was formed or registered. Companies must also provide the name(s), date of birth, address, and an identifying document or document number (driver’s license, state ID, or passport) for each beneficial owner.

For entities registered or established after January 1, 2024, all beneficial owners must be disclosed, in addition to any company applicants. Entities established after this date may omit company applicant information.

All information will be submitted to the FinCEN, either via their forms or through alternate services for reporting on the organization’s behalf. DHA CPAs can provide this service for current clients. More information is available at the end of this post and will be communicated to all clients.

REQUIREMENTS FOR COMPLIANCE:

All reporting must be submitted to the FinCEN before January 1, 2025. If the company was established in 2024, there is now a 90-day window in which to report BOI until 2025, in which all entities established must report BOI within 30 calendar days after notice of effective registration.

Any updates, changes, or corrections to BOI that were previously reported will also require a new filing within 30 days. These changes include:

  • A change of address for any entity or owner
  • A legal name change for any entity or owner
  • A new driver’s license or identifying document number
  • The addition or removal of an owner
  • An operational change or new delegation of authority could also qualify

While it has not been officially established yet, there will be an annual reporting requirement put in place for all entities, in addition to any necessary updates or corrections that may arise.

As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of over $500 per day. This penalty amount is adjusted annually for inflation and is currently set at $591 per day.

Willful violation may also result in criminal penalties of up to two years imprisonment and fines up to $10,000. These violations include the willful failure to file a BOI report, willfully filing false BOI, or willful failure to correct or update previously reported BOI.

HOW TO COMPLY BY JANUARY 1, 2025:

BOI reporting can be submitted to FinCEN via their website, with the same application applying for any updates or corrections.

Our team at DHA CPAs will also be distributing proposals to complete any current and future filings on your behalf, maintaining your BOI information and records for future reference. We know that running a business requires your utmost focus and care, and this new requirement may leave you without time to make necessary reporting and record-keeping a priority. We are here to help.

More information about the new BOI reporting requirements under the Corporate Transparency Act is readily accessible via the resources below:

FinCEN Reporting Hub and Resources

Frequently Asked Questions from FinCEN

General Information from the US Chamber of