What Business Owners Need to Know About the Corporate Transparency Act

 Posted on January 31, 2024 in Taxation Law

There are numerous issues related to taxes and government regulations that businesses will need to address on an ongoing basis. It is not always easy to keep up with new laws that place requirements on different types of businesses, but it is crucial to address these issues correctly to avoid potential penalties. 

The Corporate Transparency Act is one law that recently went into effect, and it requires certain businesses to report ownership information to the Financial Crimes Enforcement Network (FinCEN). An attorney who provides assistance to small businesses and other types of companies can help ensure that this information is reported correctly while working with business owners to avoid potential penalties.

Beneficial Ownership Information Reports

Under the Corporate Transparency Act, certain types of companies are required to file a Beneficial Ownership Information Report (BOIR) with FinCEN. These reports provide information about a company’s owners or the personnel who maintain control over a company’s operations. 

A BOIR must include information about anyone who is considered to be a beneficial owner of a company. A beneficial owner is a person who exercises substantial control over a company or has an ownership in interest of at least 25%. People with substantial control may include senior officers such as a president, chief executive officer (CEO), or chief financial officer (CFO); people with the authority to appoint or remove senior officers; or important decision-makers who have substantial influence over the nature and scope of a business, the structure of a business, or a business’s finances. Ownership interests may be determined based on equity, stock, voting rights, profit interest, or other instruments or arrangements used to establish ownership of a company.

A BOIR must include information about a company, including its name, trade names or “doing business as” (d/b/a) names, street address, the jurisdiction where it was registered, and taxpayer identification number. The report must also include the name, date of birth, residential address, and ID number from a driver’s license, passport, or government issued identification document for anyone who is considered a beneficial owner. For businesses created or registered on or after January 1, 2024, a BOIR must also include information about company applicants who filed the documents required to create or register a company.

What Businesses Must File BOIRs?

The BOIR requirements apply to businesses that are considered to be “reporting companies.” In general, domestic companies that are created by filing documents with state governments are considered reporting companies. They include corporations and limited liability companies (LLCs). Foreign companies may be considered reporting companies if they have registered to do business in the United States by filing these types of documents. Sole proprietorships, general partnerships, and other companies that are not required to file these types of documents are excluded from BOIR requirements.

There are several types of companies that are exempt from BOIR reporting requirements, including:

• Banks and credit unions

• Securities brokers

• Insurance companies

• Accounting firms

• Public utilities

• Companies that are tax-exempt

• Large operating companies that have physical locations in the United States, employ more than 20 full-time employees in the United States, and filed a tax return for the previous year showing more than $5 million in gross receipts

When Is the Due Date for a BOIR?

Reporting companies that were created prior to January 1, 2024 must file BOIRs before January 1, 2025. Companies created between January 1, 2024 and January 1, 2025 must file BOIRs within 90 days after their date of registration. Companies created after January 1, 2025 will have 30 days after their date of registration to file BOIRs. If there are any changes to the information reported on a BOIR, such as changes in company ownership, an updated BOIR must be filed within 30 days of the change.

What Are the Penalties for Failing to File a BOIR?

Willful violations of BOIR reporting requirements may result in both civil and criminal penalties. Willful violations may include failing to file a BOIR, failing to update a BOIR when required, or purposely reporting false information in a BOIR. Civil penalties may include the requirement to pay up to $500 for each day that a violation continues. Criminal penalties could include a fine of up to $10,000 and a prison sentence of up to 2 years. To avoid penalties, mistakes or omissions may be corrected within 90 days after a BOIR’s due date.

Contact Our San Jose, CA Business Tax Attorney

Understanding the reporting requirements under the Corporate Transparency Act is not always easy. At John D. Teter Law Offices, our San Jose tax lawyer can consult with business owners to determine if they are required to file a BOIR, and we can also assist with any questions you have about filing these reports and ensuring that all requirements have been met correctly. To learn how we can help address these and other tax-related issues, contact us at 408-866-1810.