Corporate Transparency Act, Reporting with the Financial Crimes Enforcement Network (“FinCEN”)

Do you own a business entity ? If yes, do you know about the Corporate Transparency Act? If not, keep reading…this is an important new federal law with filing requirements that applies to most businesses with steep penalties for non-compliance.

As of January 1, 2024, a new federal law called the Corporate Transparency Act became effective. The law requires nearly all businesses, including LLCs, to report Beneficial Ownership Information (“BOI”) to the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).

Contents of a BOI Report

When filing a BOI Report the purpose is for the FinCEN division of the Treasury to obtain the beneficial information about the business. Specifically, the identifying information about the individuals who directly or indirectly own or control a company.  The reporting business will have to report the following information about the business:

• The legal name;
• Any trade names, including “doing business as” (d/b/a), or “trading as” (t/a) names;
• The current street address of its principal place of business if that address is in the United States;
• Its jurisdiction of formation or registration; and
• Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

For each beneficial owner, the business also needs to report information about each owner. A beneficial owner is an individual who either directly or indirectly exercises substantial control or owns or controls at least 25% of the reporting company’s ownership interests. An individual with substantial control is someone who falls into any of the following four categories:

• A senior officer such as a president, chief executive officer, chief financial officer, general counsel, chief operating offer, or any other officer who performs a similar function;
• An individual with authority to appoint or remove certain officers or a majority of directors;
• An important decision-maker for the company;
• The individual has any other form of substantial control.

The BOI Report will ask for the following information about the beneficial owners:

• The individual’s name;
• Date of birth;
• Residential address; and
• An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document, including an image of the identification document.

Filing Deadlines

Businesses formed before 2024 must file a BOI Report on or before December 31, 2024. Businesses formed in 2024 must file a BOI Report within 90 days of the creation of the business. Businesses formed after 2024 must file a BOI Report within 30 days of the creation of the business. If any of the information reported changes the business must update their BOI Report within thirty (30) days.

Exempt Entities

The following entities are exempt from the filing requirements described above:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. Investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance producer
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. Large operating company
22. Subsidiary of certain exempt entities
23. Inactive entity

Inactive Entity

An inactive entity must meet all of the six requirements below in order to be exempt from the filing requirements:

1. The entity was in existence on or before January 1, 2020.
2. The entity is not engaged in active business.
3. The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially. “Foreign person” means a person who is not a United States person. A United States person is defined in section 7701(a)(30) of the Internal Revenue Code of 1986 as a citizen or resident of the United States, domestic partnership and corporation, and other estates and trusts.
4. The entity has not experienced any change in ownership in the preceding twelve-month period.
5. The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period.
6. The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

If you believe that your LLC qualifies as an inactive entity, you may consider terminating the LLC with the Arizona Corporation Commission.

Penalties for Failure to File BOI Report

If a business fails to file a BOI Report on or before the deadline for filing as outlined above, the penalty is $500.00 per day until the business files a BOI Report. The law also provides for criminal penalties for a person who willfully violated the reporting requirements of up to two years imprisonment and a fine of up to $10,000.00.

How to Report

The report can be filed online https://boiefiling.fincen.gov or with the assistance of business counsel. Note: Bivens & Associates will not be filing BOI Reports and if you need the assistance of counsel, we can provide you with referrals. FinCEN has been notified of fraudulent attempts to solicit the information on the report so be cautious of websites or other entities that are actively soliciting the information from you. FinCEN has said that it does not send unsolicited requests.

Relevant Litigation

Please note that a federal district court in the Northern District of Alabama decided a case regarding the above-described reporting requirements called National Small Business United v. Yellen.  The court concluded that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoined the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs.  At this time, that Court’s decision is only relevant to the plaintiffs in that action and the filing requirements remain in place for all others.  An appeal was filed on March 11, 2024, and these requirements could change in the future as a result of the ongoing litigation. Again, if you have questions, please consult with business counsel as to your best course of action.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as offering legal advice or creating an attorney client relationship between the reader and the firm or author. You should not act or refrain from acting on the basis of any content included in this article without seeking appropriate legal advice about your individual facts and circumstances from an attorney licensed in your state. Bivens and Associates, P.L.L.C. expressly disclaims all liability with respect to actions taken or not taken based on any or all information contained in this article.