The Corporate Transparency Act and the American Bar Association (ABA)

The Rationale Behind the Enactment of the Corporate Transparency Act

Unbeknownst to many Certified Public Accountants (CPAs), attorneys, and business proprietors, the Corporate Transparency Act (“CTA”) was officially instated in 2021, compelling the majority of businesses in the United States to disclose information about their beneficial owners. The primary objective of the CTA is straightforward—to counteract illicit financial activities, encompassing money laundering, terrorism financing, and other unlawful pursuits. The mandated revelation of the ultimate beneficial owners (“UBOs”) of most domestic entities, overseen by the Financial Crimes Enforcement Network (“FinCEN”), aligns with efforts to expose opaque shell companies.

The Foreign Action Task Force (“FATF”), established by the Organization for Economic Cooperation and Development (“OECD”), has unfavorably assessed the United States for its disclosure of beneficial ownership information. The FATF, advocating for transparency among market-based democratic governments, contends that countries with less transparency are more susceptible to criminal activities. The Corporate Transparency Act, a recent U.S. initiative, aims to enhance transparency within U.S. businesses to impede the circulation of illicit funds.

Key Features of the Corporate Transparency Act

Enacted on January 1, 2021, as part of the National Defense Authorization Act, the CTA represents a paradigm shift in the Bank Secrecy Act and related anti-money laundering legislation. FinCEN’s objective is to establish a standardized reporting system for companies formed in the U.S., outlining the beneficial ownership of these entities. As the bureau responsible for collecting financial data to combat money laundering, terrorist financing, and other financial crimes, FinCEN’s emphasis is on refining reporting systems.

Tax practitioners must be acutely aware of the new reporting requirements to avoid exposing clients to substantial civil and criminal penalties. Reporting companies, formed through state filings or registered to do business in the U.S., must file reports with FinCEN disclosing beneficial owners and relevant information about company applicants.

CTA Reporting Requirements: Who and What to Disclose

The CTA imposes reporting obligations on entities known as “reporting companies,” excluding certain entities like revocable living trusts, sole proprietorships, and highly regulated entities. Exceptions also apply to entities exceeding 20 U.S. full-time employees with over $5 million in gross receipts or sales in the previous tax year.

Beneficial owners, as defined by the CTA, include persons with substantial control, individuals owning 25% or more of a company (directly or indirectly), and company applicants. The term “substantial control” involves a qualitative, facts-and-circumstances-based analysis, encompassing individuals with the ability to influence major company decisions.

The FinCEN Beneficial Ownership Information (BOI) report necessitates the disclosure of details such as legal names and jurisdictions of beneficial owners, date of birth, addresses, unique identifying numbers (e.g., Driver’s License or Passport Number), and a picture of the identification. Notably, financial information and business purposes need not be disclosed.

Filing Deadlines and Penalties

New companies formed after January 1, 2024, have 90 days from the effective date of formation to submit a BOI report to FinCEN. Existing reporting companies must file the report by January 1, 2025. Failure to comply with reporting requirements or providing fraudulent information can lead to substantial penalties, including fines and imprisonment.

Key Takeaways Summarized

– Broadly defined “reporting companies” are obligated to file a BOI report.
– Beneficial owners of reporting companies must also submit a BOI report.
– Specific information required in these reports may pose challenges.
– Penalties may only be imposed for willful violations.
– Tight deadlines exist for required disclosures.
– Compliance with the CTA and vigilant monitoring for updates is crucial.

How BOI FI Facilitates Compliance

BOI FI serves as a trusted ally for navigating the new filing requirements under the Corporate Transparency Act. Addressing the complexity of the reporting regime and potential penalties for non-compliance, BOI FI provides a user-friendly platform for seamless filing. Embark on the filing process with ease by leveraging the capabilities of BOI FI today.