What’s the Corporate Transparency Act All About?

If you are a part of the business world, you may have been hearing whispers of CTA and BOI and wondered what these mysterious acronyms are. When I was a kid, one of my favorite cartoons was Scooby Doo. Every episode, Daphne asked a “but” question: But who… but what… but when… but where… but why… but how? The answers to these questions were always critical to solving the mystery. In this article, we are going to use Daphne’s method to explain everything you need to know about CTA and BOI.

But what is CTA and BOI?

CTA stands for the Corporate Transparency Act of 2021. This federal legislation calls for the uniform disclosure of beneficial ownership of business entities as part of the Anti-Money Laundering Act of 2020. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) will enforce the act by creating a national registry of beneficial owners via a new Beneficial Ownership Interest (BOI) reporting requirement.

But why was the legislation passed?

CTA was passed with the intention that BOI reports would help reduce instances of money laundering, tax fraud, drug trafficking, and terrorism in the U.S. by creating a federal database that tracks the beneficial ownership of U.S. entities. This act puts the U.S. in lockstep with the EU, which has similar requirements, to highlight business transparency. The database will assist federal agencies for national security, intelligence, and law enforcement that demonstrate a need for criminal and civil prosecution in identifying entities and individuals seeking to conceal their ownership of businesses through shell companies and elaborate legal structures. Federal agencies can also make the information available to state and foreign agencies with similar objectives. Financial institutions seeking to implement customer due diligence and the related federal and state regulatory agencies overseeing the customer due diligence will also have access to the information if sufficient need is shown.

Obviously, the intentions are good, but this new reporting procedure will put a filing burden on millions of legitimate small businesses acting in good faith. Here is the scary part: noncompliance or delay in noncompliance can result in civil penalties of $500 per day, and criminal penalties of up to two years imprisonment and $10,000 in fines. These penalties can be imposed on any senior officer of the business.

But who will be affected by the CTA?

Reporting companies will need to report on their beneficial owners and the company applicants. This sentence makes zero sense without knowing what about half of those words mean, so let’s go over the key terms.

Reporting Company

By definition, a reporting company generally includes corporations, limited liability companies, and any other entity created by filing a document with a state, tribal, or other foreign authority doing business in the U.S. The term effectively covers all business entities doing business in the U.S. unless an exception is met. Those exceptions include:

• Insurance companies
• Accounting firms
• Banks
• Investment companies
• Venture capital advisors
• Publicly traded companies
• Tax exempt entities
• Wholly owned subsidiaries of exempted entities
• Large operating companies – this is defined as a company that employs more than 20 people, has a physical location in the US, and has over $5M in receipts on a recently filed tax return.
• Inactive companies – this is defined as a company that was formed before 2020 and has no activity, no assets, no foreign ownership, and no ownership changes in the prior 12 months.

When it comes time for a reporting company to file a BOI report, the report must include the following information:

• Full legal name
• Any alternative names (DBAs)
• Tax identification number
• Jurisdiction of formation
• Current US business address
• Beneficial owner information
• Company applicant information – for companies formed on or after 1/1/24 

Beneficial Owner

A beneficial owner is defined as an Individual(s) who exercises substantial control over the reporting entity or holds at least a 25% ownership interest. This would include a company’s Presidents, CEOs, CFOs, COOs, General Counsel, any individual that has the powers of the titles mentioned above under a different title, or any individual that has the right to appoint or remove an officer of the company.

When it comes time for a beneficial owner to file a BOI report, the report must include the following information:

• Full legal name
• Date of birth
• Residential address
• Unique ID number from the government – driver’s license number, passport number, other state/local/tribal ID
• Image of respective government document

Company Applicant

A company applicant is defined as an individual(s) who directs, controls, or files the document that forms or registers the entity with a state. In most cases, this person is the company owner and the lawyer or individual directed to make the filings. Reporting of Company Applicant is applicable to any company that is formed on or after 1/1/24.

When it comes time for a beneficial owner to file a BOI report, the report must include the following information:

• Full legal name
• Date of birth
• Business (if the actual filer) or residential address (if other than the actual filer)
• Unique ID number from the government – driver’s license number, passport number, other state/local/tribal ID
• Image of respective government document

It’s important to note that no more than two company applicants can be included on the BOI report.

For a visual guide, please download our Glossary of Terms PDF.

But when do I need to file the report?

If your company existed before January 1, 2024, and you don’t have an exemption, the good news is that your first BOI report isn’t due until January 1, 2025. If the reporting company is formed during 2024, the initial filing is due within 90 days of when written notice is received that registration is effective. If the reporting company is formed on or after January 1, 2025, the initial filing is due within 30 days of then the written notice is received. Additionally, filings are due within 30 days if there are changes to the beneficial owners, or if the company has a change that causes it to lose its exempt filing status. These due dates are important to remember because something as simple as a retiring officer being replaced could trigger a 30-day filing window. As noted before, the penalties for non-filing are steep.

But how do I file the report?

Unlike most report filing processes, your CPA cannot help you with this one. Advising clients regarding the legal or regulatory aspects of their compliance with CTA is the responsibility of qualified legal counsel, not a CPA. Ellin & Tucker strongly encourages business owners to consult with qualified legal counsel when filing this report.

What we can tell you is FinCEN is currently developing an online filing system called “Beneficial Ownership Secure System” or “BOSS.” The BOSS system is live as of January 1, 2024. There will not be any sort of filing fee.

But where can I get even more detailed information on CTA and BOI?

You can visit https://www.fincen.gov/boi-faqs for more information, or as always, you can reach out to your team at Ellin & Tucker to have a conversation on how your reporting entity might be affected.