Mandatory Reporting for You and Your Entities Under the Corporate Transparency Act in 2024

What is the Corporate Transparency Act?

One of the widest reaching federal business entity laws ever enacted, the Corporate Transparency Act (the “CTA”) requires a majority of domestic and foreign entities registered to do business in the United States to report information about their companies, owners and executives directly to the U.S. Treasury’s Financial Crimes and Enforcement Network (“FinCEN”). This information is compiled into a database to facilitate information sharing among national security agencies, local law enforcement agencies and financial institutions. The CTA was passed to enhance the transparency of entities’ ownership to combat money laundering, tax fraud and other illicit activities. As it applies to the average businessperson, the CTA demands a new, higher level of reporting of personal information in connection with entities he or she controls.

What entities does the CTA apply to?

The CTA’s reporting requirements will impact an estimated 32.6 million existing businesses. It applies to all entities formed by the filing of a document with any secretary of state, such as limited liability companies, corporations, limited partnerships, limited liability partnerships, statutory trusts, and nonprofit entities. In short, the CTA will likely apply to your entity, as almost all entities are formed by a filing with a secretary of state. The CTA also applies to any entity formed under the laws of a foreign country and registered to do business in the U.S. The CTA will apply to newly formed businesses as well, with all companies created or registered on or after January 1, 2024, also being subject to mandatory disclosures. Entities that were created/registered and later dissolved before January 1, 2024, are not required to file a report.

Could my entity be exempt from the CTA?

Exemptions from the CTA are very limited, with only 23 total exemptions such as securities issuers,credit unions, domestic governmental authorities, banks, investment companies or advisors, insurance companies, inactive entities that meet specific requirements, large private companies which have filed their most recent federal income tax return showing over $5 million of gross receipts/sales and have at least 20 full time employees in the U.S., accounting firms and certain tax-exempt entities such as charitable trusts, to name a few. See § 5336(a)(11)(B). Wilk Auslander is happy to assist in assessing if your entity qualifies for an exemption. However, exemptions are not permanent; changes in the business that disqualify an entity for an exemption then require CTA compliance by the entity.

What needs to be reported?

The CTA requires each “Reporting Company” to file a Beneficial Ownership Information Report (“BOIR”). The following information must be reported:

1. Reporting Company Information: For the entity itself, it must report its legal name, any trade, “doing business as” or “trading as” names, the address of its principal place of business in the U.S., jurisdiction of formation or registration and taxpayer identification number (EIN). For a U.S. principal place of business, Reporting Companies that do not utilize office space typically report the U.S. residential address of a beneficial owner. If the Reporting Company does not already have an EIN, you can apply for and acquire one from the IRS’s website.
2. Beneficial Owner Information: Each beneficial owner must report his/her name, date of birth, residential address and unique identifier number from an official document from a recognized issuing jurisdiction and a photo of that document (i.e., a non-expired driver license or passport). Determining who is the beneficial owner(s) of the Reporting Company is discussed further below.
3. Company Applicant: Reporting Companies created or registered in or after 2024 must also report their “company applicant(s)”. A Reporting Company can have a maximum of two company applicants: (a) the individual who directly files the document that creates or registers the Reporting Company (in most cases, an individual at a service provider (i.e., Corporation Service Company (“CSC”)) who directly filed the document),  and if more than one individual is involved in the filing of the formation/registration document, (b) the individual who was primarily responsible for directing or controlling the filing of the document (the attorney, if one was used; if not, the incorporator/authorized officer who executed the document filed with the secretary of state). If Wilk Auslander assisted in creating or registering your entity in 2024, please reach out to the partner who aided with the entity formation/registration to acquire the necessary FinCEN IDs (also discussed below).
4. Submitter Information: The individual submitting the BOIR will need to provide their full name and email address.

Reports must be updated within 30 days of a change to the reportable information above, such as a change in beneficial ownership, address, a sale of all or a large stake in the business, a merger, acquisition, appointment or resignation of a senior officer (i.e., president, CEO, COO, CFO, general counsel, etc.) or death of a beneficial owner.

Who is a Beneficial Owner?

A beneficial owner is any individual who, directly or indirectly, either: (1) exercises substantial control over a Reporting Company, or (2) owns or controls at least 25% of the ownership interests of a Reporting Company. If the Reporting Company is a subsidiary owned by another entity, the above analysis must be applied to the parent(s). The BOIR is not limited to one majority owner’s information— there is no maximum limit of how many beneficial owners an entity can have. For example, beneficial owners can include, but are not limited to, multiple shareholders, senior officers, trustees and beneficiaries of a trust. The definition of a beneficial owner in the CTA is intentionally broad, aimed at identifying all individuals with significant ownership stake in or influence over a Reporting Company.

Applying for a FinCEN ID (Optional)

To save time, if you are a beneficial owner and/or company applicant for multiple entities, you can apply for a FinCEN ID to avoid inputting your information and documents for each Reporting Company. The online application takes a few minutes and the FinCEN ID is generated at its completion. Then, the FinCEN ID is the only information required to be inputted in the BOIR for the sections applying to its holder.

When are the reports due?

The reporting deadlines for filing the BOIR is determined by the Reporting Company’s date of formation or registration in the U.S., and are as follows:

Every Reporting Company in existence on or after January 1, 2024, must file a BOIR, regardless of whether the entity is dissolved before its reporting deadline. While there is no annual reporting required, entities must file an updated report within 30 days of becoming aware of or having reason to know of inaccurate information previously filed, or when the information requiring reporting has changed.

What are the penalties for failure to report?

Willful failure to comply with the CTA’s reporting requirements carries both civil and criminal penalties. While it is unclear how and to what extent FinCEN will be enforcing the reporting requirements of the CTA, the CTA provides that willful failure to comply with the CTA can result in civil penalties up to $500 for each day a violation persists, and willful failure to comply or providing false information may result in criminal penalties, including a fine up to $10,000 or two years imprisonment.

What are the next steps?

Once you have gathered your Reporting Company information and determined who is/are the beneficial owner(s) and if there are company applicant(s), you can collect the requisite documents or FinCEN ID’s and file the Reporting Company’s BOIR directly on FinCEN’s website, free of charge. Alternatively, you can utilize a service company like CSC, who offer a filing service to collect the relevant information and documents and then file the BOIR on behalf of the Reporting Company (you will need to set up an account with CSC if you do not already have one to utilize this service). Wilk Auslander is happy to help with any questions regarding the CTA or BOIR, and to assist you with your filing.

We here at Wilk Auslander continually stay abreast of new developments and their applications in corporate law. If you would like to further discuss the CTA, please reach out to Stephen Albert at (212)  981-2320, salbert@wilkauslander.com, Jonathan Bender at (212) 981-2322, jbender@wilkauslander.com, Mark Clyman at (212) 981-2318, mclyman@wilkauslander.com, Jack Wilk at (212) 981-2333, jwilk@wilkauslander.com or Caitlyn Ford at (212) 981-2307, cford@wilkauslander.com.

At Wilk Auslander we advise businesses and entrepreneurs across a diverse spectrum of corporate and commercial dealings. Our clients range from startups to seasoned investors and small business to large multinational enterprises. We recognize the unique needs of each client, and craft innovative and cost-efficient strategies tailored to address their specific challenges and help them achieve their business objectives and corporate compliance while mitigating both immediate and long-term risks.