How the CTA is Revolutionizing Corporate Transparency in 2024

ARTICLE | April 19, 2024

The Corporate Transparency Act (CTA), enacted in 2021 as part of the National Defense Authorization Act, represents a significant step towards enhancing business transparency and combating illicit activities such as money laundering and terrorism financing. Key to this initiative is the Beneficial Ownership Information (BOI) reporting requirement, which the Financial Crimes Enforcement Network (FinCEN) began accepting on January 1, 2024.

The BOI reporting requirement has the potential to transform the corporate landscape by creating a centralized database of beneficial ownership information. The goal is to prevent corporate anonymity from being exploited for illegal financial transactions, with the U.S. Treasury stating that the guise of anonymity has long enabled money laundering, terrorism, and drug trafficking.

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While the BOI reporting requirements have been met with some opposition due to concerns over the increased regulatory burden on small businesses, the implementation timeline has continued as planned. Despite a Federal District Court ruling in Alabama (NSBA v. Yellen) on March 1, 2024, finding the CTA to be unconstitutional, FinCEN has maintained that companies are still required to comply with BOI reporting.

Who Is Subject to Reporting?

The BOI reporting requirements apply to corporations, LLCs, or other business entities formed by filing with a U.S. secretary of state or foreign companies registered to do business in the U.S. However, there are exemptions for nonprofits, publicly traded companies, and certain large operating companies.

The reporting requirement applies to beneficial owners, defined as an individual who either exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company.

Reporting Timelines and Requirements

Companies existing before January 1, 2024, are required to file their initial BOI report by January 1, 2025. Firms formed between January 1, 2024, and December 31, 2024, must file within 90 days of creation or registration, while for companies formed on or after January 1, 2025, the deadline is 30 calendar days from creation or registration.

While there is no annual filing requirement, companies are required to file updates within 30 days of any changes in beneficial ownership, including changes in beneficial owners or in a beneficial owner's name, address, or unique identifying number.

What Information Is Required?

The BOI report should include the company's legal name, physical address, jurisdiction of formation or registration, and Taxpayer Identification Number. For each beneficial owner, the report must include their name, date of birth, address, and an identification number from an acceptable form such as a driver's license or passport. No financial information or details about the business operations are required.

Penalties for Non-Compliance

The repercussions for non-compliance are severe. Failure to report could result in civil penalties of up to $500 per day and criminal charges of up to two years imprisonment and a fine of up to $10,000.

Conclusion

The BOI reporting requirements mark a significant shift towards greater transparency in the corporate ecosystem. Despite the added regulatory burden, businesses must comply with these requirements or face harsh penalties. The Ohio Society of CPAs and other state CPA societies are closely monitoring developments and seeking legal opinions on the implications of these requirements. As the situation evolves, companies should stay updated and consult with their legal counsel to ensure compliance.

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