What Is The Corporate Transparency Act, and Who Will It Affect?

If you’re a business owner and you’re not familiar with the Corporate Transparency Act, it’s time to get familiar with the regulations, plan for filing, and get documents in order.

Why? Because the majority of small businesses will have to file a beneficial ownership information (BOI) report with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 1, 2025.¹ Businesses may submit reports as early as January 1, 2024.

Reporting won’t be challenging, but I want my clients and business owners across Texas and the country to know the essentials and be prepared. It’s common to form ancillary LLCs or entities to take advantage of a newly acquired product or service that’s outside the current direction of a business. So, this article is useful for entrepreneurs involved in existing, expanding, and new business ventures.

The Corporate Transparency Act has been in the works since 2021.

Congress passed the act three years ago as part of the National Defense Authorization Act (NDAA). A year later, the Department of the Treasury finalized Section 6403. Now, it’s about to take effect.

The act aims to control the proliferation of potentially fraudulent businesses.

According to the U.S. Small Business Administration (SBA), 27,104,006 small businesses were “nonemployer firms,” meaning they had no employees.² The Corporate Transparency Act targets these firms to promote transparency and visibility across the American business landscape.

Let’s get back to those filing deadlines.

So, let me get this done on paper in the clearest manner possible. Regarding filing deadlines for Beneficial Ownership Information (BOI) reports, what are the dates? Here are three scenarios.

• Scenario #1: “A business created and registered to do business before January 1, 2024”
  • Filing Deadline: January 1, 2025
• Scenario #2: “A business created and registered on or after January 1, 2024, or any time before January 1, 2025”
  • Filing Deadline: 90 calendar days from the receipt of a public notice from your state confirming the creation or registration of your company.
• Scenario #3: “A business created and registered after January 1, 2025”
  • Filing Deadline: 30 calendar days from the receipt of a public notice from your state confirming the creation or registration of your company.

Which types of business entities need to file a BOI report?

Businesses that must file a BOI report are referred to under the law as “reporting companies.” If you’re a small business owner, you’re most likely a “reporting company.”

To keep it short, I’ve organized the type of business entities into two groups. If you’re in either group, thinking ahead about filing is important.

1. Corporations, LLPs, or other entities created under the authority of a secretary of state or a similar office under the law of a state.
2. Foreign corporations, LLCs, or other entities formed in a foreign country and registered to do business in the U.S.

Note: Sole-proprietorships that don’t use a single-member LLC are not considered a reporting company. Check out the FinCEN website’s Frequently Asked Questions³ for a complete list of businesses that need to file.

Here are entities exempt from filing a report.

There are 23 categories of exemption. Most of them are for entities that already report financial information to the Federal or state government—for example, a publicly traded company that files reports with the U.S. Securities & Exchange Commission (SEC).

There’s also an exemption for Large Operating Companies.

Large Operating Companies are entities that have the following characteristics:

1. Employ more than 20 full-time employees
2. Have an operating presence at a physical office in the US
3. Have demonstrated more than $5 million in gross receipts or sales in the previous year

Here’s what business owners need to include on their BOI report.

What do I need to include in my BOI report to FinCEN? Fortunately, the report isn’t too complicated. I’ll break the information into three categories.

1. Company Information: Supply the name, address, jurisdiction of formation, and TIN associated with your company.
2. Beneficial Owner Information: Provide each beneficial owner’s full name, date of birth, and address. Include identification in the form of a US passport (image), state driver’s license, or other forms of federal identification for each beneficial owner. (The beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company.)
3. Company Applicant Information: Required for companies created or registered on or after January 1, 2024. (The same information must be provided for beneficial owners of companies registered on or after Jan. 1, 2024)

There are stiff penalties for businesses that avoid filing a BOI report.

Any business that willfully provides false information to FinCEN or knowingly fails to report could face up to $10,000 and two years in prison. So, make sure you remember to report. I’ll be releasing another article closer to the deadline.

What do you need to do to stay on top of compliance issues?

Many companies will enter the new year unsure of what the Corporate Transparency Act is. Even though the filing deadline is over a year away, I think it’s prudent to bring this to your attention sooner rather than later.

Talk soon,
Jeremy A. Johnson, CPA

References

1. Beneficial ownership information reporting. Fincen.gov. [cited 2023 Dec 17] Available from: https://www.fincen.gov/boi
2. U.S. Small Business Administration. Frequently Asked Questions. Sba.gov. [cited 2023 Dec 17] Available from: https://advocacy.sba.gov/wp-content/uploads/2023/03/Frequently-Asked-Questions-About-Small-Business-March-2023-508c.pdf
3. United States Department of the Treasury Financial Crimes Enforcement Network. Beneficial Ownership Information. Fincen.gov. [cited 2023 Dec 17]. Available from: https://www.fincen.gov/boi-faqs#D_5