Corporate Transparency Act: Frequently Asked Questions

The Corporate Transparency Act, what is it?

In January 2021, Congress passed the Corporate Transparency Act (CTA) with the main objective of combatting money laundering and other illegal activities. The CTA mandates that companies established or registered in the United States must reveal the identities of the individuals who own or manage the organization. To comply with this law, entities are required to submit a beneficial ownership information report to The Financial Crimes Enforcement Network (FinCEN), which is a division of the Treasury Department.

What is the definition of a beneficial owner?

A beneficial owner refers to an individual who exercises significant control over the entity, either directly or indirectly, or possesses ownership interests of at least 25 percent in the entity. There are a few exceptions to this definition, including minor children of a beneficial owner and individuals who are solely employees of the reporting company.

What details are required from a beneficial owner?

• Full legal name
• Date of birth
• Current residential or business address (must be a physical address) as of the report date
• Unique identifying number from an acceptable identification document defined as:
  (i) a non-expired U.S. passport;
  (ii) a non-expired identification document issued by a state, local government, or Indian tribe
  (iii) a non-expired driver’s license issued by a state; or
  (iv) if the individual lacks all of the foregoing documents, a non-expired foreign passport.
• Image of document including the unique identifying number

What is the process for submitting beneficial ownership information to FinCEN?

The Treasury Department is expected to announce a digital process before the CTA is implemented, although the exact details have not been officially disclosed.

What does the term “company applicant” mean?

A company applicant refers to two individuals:

1. The person who personally submits the document that establishes the company, or in the case of a foreign reporting company, the document that initially registers the company to operate in the United States.
2. The person who holds the main responsibility for overseeing or managing the submission of the relevant document by someone else.

What details must be provided by a company applicant?

• Full legal name
• Date of birth
• Current residential or business street address, which must be a physical address as of the date of this report.
• Unique identifying number from an acceptable identification document defined as:
  (i) a non-expired U.S. passport;
  (ii) a non-expired identification document issued by a state, local government, or Indian tribe
  (iii) a non-expired driver’s license issued by a state; or
  (iv) if the individual does not have any of the aforementioned documents, a non-expired foreign passport.
• An image of the document that contains the unique identifying number.

Note: For entities that were formed or registered before January 1, 2024, applicant information is not required to be reported.

What is the information that a reporting company must provide?

1. Its complete legal name
2. any alternate names used for trade or “doing business as”,
3. a physical address that is current and complete, including: (i) for a reporting company with its main place of business in the United States, the street address of the main place of business, and (ii) for all other cases, the street address of the primary location in the United States where the reporting company carries out its business,
4. the jurisdiction of formation, whether it is a state, tribal, or foreign jurisdiction,
5. for a foreign reporting company, the state or tribal jurisdiction where it initially registers,
6. the Taxpayer Identification Number (TIN) issued by the IRS (including an Employer Identification Number), or if a foreign reporting company has not been assigned a TIN, a tax identification number provided by a foreign jurisdiction along with the name of that jurisdiction.

What are the consequences if I provide inaccurate information to FinCEN?

In the event that inaccurate or outdated information is transmitted, a grace period of up to 90 days is provided for the submission of the correct information.

What steps should I immediately take?

Currently, there is no available choice to submit reports and the requirement is not yet in effect. There is no urgent need for action apart from getting ready.

Here are the suggested preparatory steps to take:

1. Take a thorough look at all the organizations you own or oversee to determine if they qualify for exemption.

2. If any of these entities do not meet the exemption criteria, start collecting the necessary information now so that you can report accurately in 2024.

3. Stay informed about any new developments by subscribing to CTA updates from RASi.

How long will FinCEN retain the beneficial owner’s information?

It is necessary to retain information for a period of five years following termination or dissolution.

Can the public access information about the beneficial owner?

The confidential information of the beneficial owner is not accessible to the public. Individuals working for the government, including employees, officers, and financial staff, will be unable to view this information.

What are the penalties for non-compliance?

• $500 civil penalty per day
• $10,000 fine or 2 years imprisonment
• 90-day Safe harbor

Are there any reporting exemptions?

The final rule includes 23 exemptions, which means that if a company qualifies for an exemption, it is not considered a reporting company and is not required to submit the BOI report.

Among the various exemptions are companies that are already regulated, such as publicly traded companies, insurance companies, and broker-dealers. Additionally, there is an exemption called the ‘large operating company’ exemption. This exemption applies to entities that meet the following criteria:

1. they have 20 or more full-time employees in the U.S.,
2. they filed an income tax return in the previous year with at least $5 million in gross receipts or sales, and
3. they have an operating presence or physical office within the U.S.

Is a report required for each state where our company is registered?

A reporting company that was created or registered before January 1, 2024, will have until January 1, 2025, to submit its initial report on beneficial ownership information. A reporting company that was created or registered on or after January 1, 2024, will have a 30-day period to submit its initial report on beneficial ownership information. This 30-day deadline begins from the moment the company receives actual notice of its creation or registration being effective, or after a secretary of state or a similar office first provides public notice of its creation or registration, whichever happens earlier.

Once this requirement is met, the reporting company will only need to provide an updated report to FinCEN if there are any changes to the previously reported information (excluding the information about the company applicant). For instance, if there is a change in the name or address of a beneficial owner or if there are changes in the name of the entity, domestic state, entity type, etc.

However, it is important to note that there is no obligation to file a new report every time a company registers in a new state. Nevertheless, if an entity adopts a new DBA (Doing Business As) during the process of registering in a state, an update must be filed with FinCEN to report the utilization of the new DBA.

Does CTA apply to all entities, or just corporations?

All entities classified as “reporting companies” must submit their beneficial ownership details to FinCEN. There are two categories of reporting companies: domestic reporting companies and foreign reporting companies.

Domestic reporting company definitions:

• a corporation,
• a limited liability company,
• or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Foreign reporting company definitions:

• a corporation, limited liability company, or other entity formed under the law of a foreign country, AND
• registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.

Your company is considered a reporting company if you had to submit a document to a state or Indian Tribal-level office, such as the secretary of state, to establish your company or register it for foreign business. The only exception would be if there is an exemption in place. A “state” refers to any state within the United States, including the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.

**The entity should also review reporting exemptions to determine if it meets any of the 23 requirements for exemption

Do S corporations have an obligation to report BOI?

As mentioned above, the reporting requirement is not linked to the tax status of the entity, but rather to whether or not it qualifies as a reporting company.

**The entity should also review reporting exemptions to determine if it meets any of the 23 requirements for exemption

Is it possible for the BOI to also be the company applicant?

Yes, it is possible for a BOI to also be a company applicant, as long as the applicant meets the necessary requirements.

A maximum of two individuals can qualify as company applicants –

• The individual who directly submits the document that establishes or initially registers the reporting company
• The individual who oversees or manages submission of the relevant document

Each reporting company can have a maximum of two company applicants. In cases where only one individual is responsible for submitting the necessary document, that individual should be reported as the company applicant.

Reporting companies that were formed or registered prior to January 1, 2024, are not required to report their company applicants. Only companies formed or registered on or after January 1, 2024, will be required to report company applicants. The following examples show how to identify company applicants in various scenarios.

Example 1: A new company is being formed by Individual A. Individual A prepares the required paperwork for company formation and submits it to the appropriate state or Tribal office, either in person or through a self-service online portal. There are no other individuals involved in the preparation, direction, or submission of these documents. Individual A qualifies as the company applicant since they directly submitted the document that formed the company. Since there is no one else involved in the filing process, Individual A is the sole company applicant. It is important to note that state or Tribal employees who receive and process the documents for company formation should not be considered company applicants.

Example 2: Individual A is forming a company. Individual A prepares all the necessary documents to form the company and instructs Individual B to submit the documents to the appropriate state or Tribal office. Following the instructions, Individual B directly files the documents to form the company. This information was published on March 24, 2023 at 9 am. In this scenario, both Individuals A and B are applicants for the company. Individual B takes responsibility for filing the documents, while Individual A primarily oversees and directs the filing process. Individual B could be Individual A’s spouse, business partner, attorney, or accountant; regardless of their role, both Individuals A and B are considered applicants for the company in this situation.

Are Third Party Organizers (such as attorneys/law firms/resident agents) required to submit their own identification when applying for an entity? And does our personal information become linked to that entity?

Yes, if that person is the one responsible for overseeing the submission of the filing or submitting it themselves, they would be required to provide the necessary information to the reporting company in order for a company applicant to be included in the BOI Report.

A reporting company is required to submit a report for each person who is a beneficial owner or a company applicant.

• The person’s name, date of birth, and residential address
• An acceptable identification document with a unique identifying number
• The identification document’s issuing state or jurisdiction’s name
• Address: The reporting company is required to report the residential street address of the beneficial owner.

The reporting company is required to report the residential street address of an individual who is applying on behalf of a company. However, if the individual is involved in the business of corporate formation, such as being an attorney or corporate formation agent, and files the formation or registration document as part of their business activities, then the reporting company should report the current street address of the business associated with the company applicant. For instance, if the company applicant is a paralegal who filed the document while employed at a law firm, the reporting company must report the business address of that law firm.

Identification Document: Acceptable forms of identification documents are listed below:

• A driver’s license issued by a U.S. state that has not yet expired. By “U.S. state,” we mean any of the states within the United States, including the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession belonging to the United States.
• A valid identification document issued by a U.S. state, local government, or Indian Tribe for the purpose of identifying an individual is required. This could include a non-driver identification card issued by a state Department of Motor Vehicles, as it is specifically intended for identification purposes.
• An unexpired passport issued by the government of the United States; or
• In the event that the person does not possess any of the three types of identification documents mentioned earlier, the company in question has the option to present the identifying number from a valid passport issued by a foreign government.

Additionally, the company responsible for reporting must provide FinCEN with a photograph of the identification document linked to the specific identifying number that has been reported.

Have you seen the reporting system firsthand?

Unfortunately, FinCEN has not granted any access to the BOSS site, which is currently under construction.

Can the information you submit to FinCEN be accessed by the public?

The Corporate Transparency Act grants FinCEN the authority to disclose beneficial ownership information to six specific types of requesters in certain situations.

• U.S. Federal agencies involved in activities related to national security, intelligence, and law enforcement;
• Law enforcement agencies at the state, local, and Tribal levels that have obtained court authorization;
• The United States Department of the Treasury;
• Financial institutions can utilize beneficial ownership information for the purpose of performing customer due diligence, as long as they have obtained consent from their customers to access this information.
• Federal and state regulators are evaluating financial institutions to ensure they comply with their legal obligations regarding customer due diligence.
• Foreign law enforcement agencies and other foreign authorities that submit eligible requests for the information via a U.S. Federal agency.

The Corporate Transparency Act enforces strict access requirements and safeguards for all groups of individuals making requests.

Among the 23 entities that are exempt, the entity numbered 23 is considered inactive. Does this classification depend on the amount of revenue or expenses? My entity does not generate any revenue, but it is actively involved in defending lawsuits. Would this mean that my entity is also considered inactive?

The BOI reporting requirement under the Corporate Transparency Act does not apply to inactive entities. In the NPRM’s 31 CFR 1010.380(c)(2)(xxiii), FinCEN restated the definition of CTA, suggested a title for the subsection to make it easier to find, and offered explanations to further clarify the exemption’s scope. More specifically, FinCEN proposed that an “inactive entity” be defined as follows:

• Existed prior to January 1, 2020 (i.e., when the CTA was enacted)
• Is not currently involved in any operational business activities
• The ownership of the property is not held by any foreign individual, whether it be through direct or indirect means, in whole or in part.
• There has been no change in ownership within the past 12 months.
• During the past 12 months, there have been no instances where funds exceeding $1,000 were sent or received by the entity, either directly or through any financial account associated with the entity or its affiliates.
• The individual does not possess any form of assets, whether within the United States or internationally, including any stake in a corporation, limited liability company, or similar entity.

How will MyCompanyWorks support lawyers in assisting clients with compliance?

CTAComply™, an online portal is set to be released by MyCompanyWorks by RASi a Lexitas company. This platform aims to provide a secure means of preparing and monitoring your FinCEN report.

Associated materials are being provided for informational purposes only and should not be considered or relied upon as legal advice. For legal advice, experienced legal counsel should be consulted.

This entry was posted on Tuesday, October 31st, 2023 at 11:32 am and is filed under Corporate/LLC Compliance. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.