What Does the Corporate Transparency Act Mean for Small Businesses?

Upcoming BOI Reporting Obligations for Small Businesses Under the CTA

New business reporting requirements go into effect January 1, 2024, that will require an estimated 32 million small businesses to file a Beneficial Ownership Information report (BOI) with the Financial Crimes Enforcement Network (FinCEN) as part of the new Corporate Transparency Act (CTA). FinCEN has issued details regarding who is obligated to report, when the report is due, and what information must be included with this report.

Small business owners should educate themselves on the requirements of the CTA and initiate processes to make a timely report in order to avoid the severe criminal and civil penalties that will be imposed for lack of compliance.

What Does the Corporate Transparency Act Mean for Small Businesses?

What is the Purpose of the Corporate Transparency Act?

Congress has enacted the Corporate Transparency Act in an effort to reduce money laundering, tax fraud, financing of terrorism, and other illegal financial activities that sometimes occur through small businesses. Congress believes that collecting identifying information on business owners and individuals who hold an interest in small businesses will enhance efforts to reduce these illegal actions.

Who is Required to File a Report?

Every corporation, limited liability company (LLC), and other entities created by filing with the Secretary of State, Arizona Corporation Commission, or anywhere else one files an entity that is required to report, will be required to file a Beneficial Ownership Information report (BOI) unless they qualify for an exemption. This includes some entities that are created in foreign countries and registered to do business in the United States.

The CTA outlines 23 categories of exempt entities, mostly for larger entities that are already subject to state or federal regulations. This includes:

  • Publicly traded companies
  • Entities who file reports with the SEC
  • Banks and credit unions
  • Tax-exempt entities
  • Insurance companies
  • Accounting firms

Additionally, “large operating companies” are also exempt from BOI reporting requirements. These are defined as entities that:

  • Employ more than 20 full-time employees in the U.S., and
  • Have a physical office in the United States, and
  • Received more than $5 million in gross sales as demonstrated by a federal income tax return

What is Included in BOI Reports?

A variety of information must be included in a BOI report:

  • The company’s full legal name
  • Any trade names under which the company operates
  • Current business address
  • Jurisdiction in which the business was formed
  • Taxpayer identification number

Each individual who controls at least 25% of a company’s assets must provide a beneficial ownership report, including:

  • Full name
  • Date of birth
  • Current address
  • Government identification document

Additionally, the individual(s) who are responsible for controlling and handling the BOI reports, called company applicants, are responsible for providing the same information for themselves, but only for businesses that are formed on or after January 1, 2024.

Is the Information in BOI Reports Public?

The information provided to FinCEN is not open to the public. However, it can be disclosed to specific requestors:

  • Federal agencies engaged in national security, intelligence, and law enforcement
  • State law enforcement agencies with a court order
  • Treasury Department
  • Government regulators of financial institutions
  • Financial institutions, with the company’s consent
  • Certain foreign authorities who request information through a U.S. agency

What Does the CTA Mean for My Small Business?

Existing businesses who are eligible for Corporate Transparency Act reporting must file their initial BOI report by January 1, 2025. Businesses that are formed on or after January 1, 2024, must file a report within 30 days of receiving actual or public notice that its creation is effective.

As part of the process, businesses are required to keep their reports current. Any changes must be updated within 30 calendar days of the change.

BOI reports can be filed through FinCEN’s website beginning January 1, 2024. Individuals who own or manage small businesses should determine whether their business is considered a reporting company and subject to reporting requirements, implement systems to track and maintain the required information and develop a procedure to complete their initial report.

Schedule Your Confidential Consultation with Arizona’s Highest Rated Tax Lawyers

At Corporate Transparency Act Filing Services we understand both sides of tax controversies and are prepared to build a strong legal strategy on your behalf as we fight to protect your rights and interests. If you’re facing an IRS audit or have received another notice from the IRS, don’t try to face the IRS alone, contact us to schedule your obligation-free consultation with one of our experienced lawyers.

Corporate Transparency Act Filing Service

Corporate Transparency Act Filing Services
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