Background
In 2021, Congress enacted the Corporate Transparency Act (CTA) which requires enhanced reporting of beneficial ownership in reporting companies. Most businesses will be subject to the new filing requirement, including:
- Businesses earning less than $5 million in gross receipts and with fewer than 20 full time employees must file.
- Certain large operating entities and certain publicly traded companies are exempt. There is a list of 23 exceptions. However, most businesses are not exempt.
- Most Section 501(c) and 501(a) organizations are exempt.
The beneficial ownership reporting requirements will be administered and monitored by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA’s new reporting requirements are targeted at catching tax fraud, terrorism and money laundering by requiring enhanced reporting of beneficial ownership in reporting companies.
Effective Dates
January 1, 2024 is the effective date of the CTA reporting requirements.
- Reporting companies which are in existence on the effective date must file their initial reports within one year (by January 1, 2025).
- Reporting companies that are formed on or after January 1, 2024, must file their initial report within 90 days of receiving actual or public note that the creation or registration of a reporting company became effective.
Penalties
Failure to timely meet the Beneficial Ownership Information (BOI) reporting requirements may trigger civil penalties of up to $500 for each day that the violation continues. Additionally, an individual may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.
CTA in the Courts
On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled in National Small Business United, d/b/a the National Small Business Association, et al. v. Yellen, et al., that the CTA exceeds Congress’ power and is thus unconstitutional. Please note that this decision only affects the plaintiffs, the National Small Business Association and business owner Isaac Winkles, and should not be relied upon by other business owners who should continue to consult with their attorneys as to their reporting obligations under the CTA. Many professionals expect the government to appeal this decision and that it could potentially be overturned. LaPorte will continue to monitor this case, and any others that may arise.
Fraudulent Activities
In addition to confusion over the constitutionality of the new reporting requirements, there has also been an increase in fraudulent attempts to solicit information from individuals and entities who may have reporting requirements under the CTA. These scams may come in the form of correspondence, both written and email, claiming to need important information for CTA compliance. FinCEN does NOT send out unsolicited requests. Do not click on any links or respond to the messages.
Going Forward
The CTA is a brand-new reporting requirement that must be complied with starting in 2024.LaPorte has a team analyzing these new reporting requirements and determining if LaPorte will be offering these services. If you have any questions regarding the BOI reporting requirements, please reach out to your service coordinator and the CTA Team for information.