Understanding the Corporate Transparency Act

Are you an LLC, a PLLC, or a corporate entity? Be aware that Congress passed the Corporate Transparency Act in 2021. The new federal reporting requirement for beneficial ownership information (BOI) goes into effect beginning January 1, 2024. The goal of this new law is to prevent money laundering and other financial crimes, including terrorist financing.

Who Is Considered a Beneficial Owner?

Individuals who own or control a company, known as beneficial owners, must report their beneficial ownership interest (BOI) to the federal government. The U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) aims to prevent bad actors from hiding assets or profiting from ill-gotten gains through shell companies or other opaque ownership structures.

Exemptions from Reporting

There are exemptions to the law. Publicly traded companies, nonprofits, and certain large companies are exempt from reporting. Sole proprietors are also exempt.

FinCEN’s Small Entity Compliance Guide actually lists a total of 23 exemptions.

Large Operating Entity Exemption

To qualify for the large operating entity exemption, a business must meet all three of the following thresholds:

1. Operate from a physical commercial street address in the U.S.
2. Have 21 or more full-time U.S. employees.
3. Generate more than $5 million in annual U.S. gross receipts, as reported on the prior year’s tax return.

However, this new federal law will impact many business clients who fail to meet these criteria.

Compliance Requirements

To achieve compliance, businesses must report personal identifying information, including:

• Name
• Date of birth
• Physical home address
• Photograph

Deadlines for Reporting

• If you formed your business before January 1, 2024, you have one year to comply.
• If your business is formed between January 1, 2024, and December 31, 2024, you have 90 days to report.
• If your business is formed on or after January 1, 2025, you have 30 days to report.

Who Can Access Your Reported Information?

Law enforcement at the federal, state, and local levels will have access to this information, but it will not be available to the general public.

Penalties for Non-Compliance

Failing to report can result in fines ranging from $500 per day up to $10,000 per incident.

Where to Report

You can report your beneficial ownership interest (BOI) through FinCEN’s website: www.fincen.gov/boi.