In early 2021, the U.S. Congress enacted the Corporate Transparency Act (CTA) to help federal agencies combat money laundering and other financial crimes. The law goes into effect on January 1, 2024 and requires approximately 33 million small businesses, including all types of real estate organizations, to report Beneficiary Information (BOI) to the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). It is mandatory to do so. You may be one of them, whether you know it or not.
Who needs to file?
There are two types of companies that need to report BOI to FinCEN.
Domestic Reporting Company: A corporation, limited liability company (LLC), or other business entity created by filing a document with the Secretary of State or similar office. Foreign Reporting Company: A corporation, LLC, or other business entity established under the laws of a country. A foreign country registered to do business in the United States.
Businesses that are not required to report to FinCEN include businesses that are not established by filing with the Secretary of State, such as sole proprietorships and certain trusts. Additionally, FinCEN classifies 23 types of companies as exempt, including tax-exempt entities, public utilities, and certain large corporations. However, in such cases, subsidiaries of those companies may have to file a declaration. Necessary information
If you're part of a multi-million company that needs to file reports, you'll need to include three main categories of information:
Reporting Company/Entity Information: Full legal entity name, any trade name or “business name,” U.S. address, state of incorporation, and IRS Taxpayer Identification Number or Employer Identification Number. Beneficiary Information: Full legal entity name, date of birth, residential address and unique identification number on current identification (passport, driver's license, etc.) for all beneficiaries. or your personal FinCEN identifier (personal identification number), if you have one. A beneficial owner is a person who exercises “substantial control” over the company or owns/controls at least 25% of its ownership. These persons include senior officers, persons with authority to appoint or remove a majority of senior officers or directors, key corporate decision makers, and/or other entities identified in FinCEN's Small Entity Compliance Guide. He may be a person with a lot of control. Company Applicant Information: For legal entities created on or after January 1, 2024, the report must include either information about the individual who filed the company formation documents (direct person) or a FinCEN identifier. the submitter) or the person (attorney, paralegal, or third party service company) who directed or controlled the submission activity. Deadlines and penalties
The first report for all reporting companies established by the end of 2023 must be filed by January 1, 2025. Companies formed during 2024 have 90 days to file their first report, and companies formed after 2025 must file their first report within 30 days. file.
If the above information changes, the reporting company must submit an updated report within 30 days. This also applies to newly exempted companies. They are required to submit such updated reports. Additionally, if a reporting company discovers that any of the information it submitted is inaccurate, it must submit a corrected report within 30 days.
Beneficiaries of entities that fail to timely report are subject to civil penalties of up to $591 per day per entity and criminal penalties of up to $10,000 and/or two years in prison if the violation continues. may be imposed.
CTA compliance burden
Compliance with the CTA is essential, but that doesn't mean it doesn't already place a burden on organizations and their leaders. Everything starts with awareness. Many businesses may not have systems or appropriate advisors in place to alert them to their obligations under the CTA. As a result, you may not hear about your CTA or your responsibilities under the law until it's too late.
Second, filing a proper report can take a lot of time and effort. Some entities with simpler ownership structures can complete the form in less than an hour or have someone else create it for them for a minimal fee. Other entities may be even more complex, where senior executives and/or their outside counsel may be responsible for hundreds of applications involving several variables and dozens of permutations. Properly gathering and entering all the appropriate information and managing/storing it properly requires a large project that can take weeks to months to complete.
Additionally, if any of that information changes and you need to submit an updated/corrected report, you will have to start the process all over again. Ongoing compliance will be a much bigger issue for reporting companies than the initial application process.
Overall, the time and effort to comply with CTAs can add up quickly. Depending on your organization, filing, updating, modifying, and managing data may require the full-time attention of an employee or entire team. To minimize costs and human errors associated with submissions, some organizations have decided to invest in tools to automate and standardize the CTA process, such as easy-to-use software-as-a-service platforms.
You must determine whether your organization is required to submit a BOI report under the CTA and do so in a timely and appropriate manner (if necessary). It's important to fully understand your legal obligations so you can budget for and find resources to ensure ongoing compliance. Of course, the more efficiently you can do all of this, the less distraction you will have from business-critical activities.
If you have any questions about the CTA or need assistance understanding or understanding the law, please contact us. We will be happy to help.
