Navigating the Corporate Transparency Act: Understanding BOI Reporting and Fines

The Corporate Transparency Act (CTA) was passed in 2021 and created a new mandate for beneficial ownership information (BOI) reporting to the Financial Crimes Enforcement Network (FinCEN) starting in 2024. This legislation aims to combat the increasing volume of financial crimes, including money laundering, terrorist financing, drug trafficking, and tax evasion. The intent of BOI reporting is to clarify who truly controls or benefits from an entity’s activities, and to make it more difficult for those conducting illegal activities to hide behind shell companies or other opaque ownership structures.

Legal Challenges and Current Status

The CTA has faced legal scrutiny, with several court cases challenging its constitutionality. Some courts have ruled that the CTA exceeds Congressional authority, issuing injunctions against the reporting requirement. Conversely, other courts have upheld the law, siding with the Treasury Department and the Department of Justice. While there is currently an injunction in place for the BOI, we are closely monitoring the legal developments and will provide updates on the status and any changes to reporting deadlines.

BOI Reporting Details

Penalties for Non-Compliance: Willful failure to file a BOI report or filing false information can result in

• Civil penalties of $591 per day of non-compliance
• Criminal penalties of up to $10,000 and up to two years imprisonment

Entities Required to Report:

• Domestic reporting companies: Corporations, limited liability companies (LLCs) and other entities formed by filing with a secretary of state or other similar office
• Foreign reporting companies: Corporations and LLCs formed under the law of a foreign country and registered to do business in the United States

Exemptions: Certain entities are exempt from BOI reporting, including:

• Large Operating Companies: Entities with over 20 full-time employees, more than $5 million in gross receipts in the previous year, and a physical presence in the U.S.
• Publicly Traded Companies: Companies already subject to SEC reporting requirements
• Certain tax-exempt organizations, including most 501(c)(3) organizations
• A complete list of exemptions is available on the FinCEN website

Definition of Beneficial Owners: A beneficial owners is an individual who:

• Owns or controls at least 25% of a reporting company
• Exercises substantial control over the reporting company which includes roles such as:
  • Senior officers (e.g. President, CEO, CFO, COO)
  • Individuals with authority to appoint or remove key officers or directors
  • Major decision makers or influencers
  • Any other individuals with significant control over the company.

What Constitutes Beneficial Ownership Information? BOI includes:

• Personal details of beneficial owners (name, address, date of birth, and an image of an identification document such as a driver’s license or passport)
• Company information (legal name, trade name or DBA, address, taxpayer identification number and state of formation or registration)
• For companies formed after January 1, 2024, additional details about the person who filed the company’s registration documents are required.

Access to BOI: FinCEN may provide access to BOI to:

• Federal agencies involved in national security, intelligence, or law enforcement
• State, local, and tribal law enforcement agencies with court authorization
• The Department of the Treasury
• Foreign law enforcement agencies through U.S. federal agency requests
• Financial institutions with customer due diligence requirements
• Regulatory agencies overseeing financial institutions’ compliance with customer due diligence requirements.

Next Steps for Compliance

If your company does not meet one of the exemptions, you should identify who qualifies as a beneficial owner, gather the necessary identification information, and be ready to report to FinCEN if the injunction is lifted. If you need assistance with your BOI reporting, contact your Kirsch CPA Group relationship manager. Maintaining compliance with BOI reporting will avoid penalty assessments and contribute to a more transparent financial environment.

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