In early 2021, the United States Congress enacted the Corporate Transparency Act (CTA) to help federal agencies combat money laundering and other financial crimes. The law went into effect on January 1, 2024. It requires about 33 million small businesses, including real estate organizations, to report beneficial owner information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Whether you know it or not, you might be one of them.
Who needs to file
Two categories of companies need to report BOI to FinCEN:
Domestic reporting companies – A corporation, limited liability company, or any other entity created by filing a document with a secretary of state or similar office.
Foreign reporting companies – A corporation, LLC, or other entity formed under a foreign country’s law registered to do business in the U.S.
Companies that don’t need to report to FinCEN include those not created by filing with a secretary of state, like sole proprietorships or certain trusts. Also, FinCEN has classified 23 types of companies as exempt, including tax-exempt entities, public utilities, certain large companies, etc. Still, in cases like this, subsidiaries of those companies may have to file.
Information required
Suppose you are with one of the millions of businesses required to file a report. In that case, you must include three main categories of information:
Reporting company / Entity information: Full legal name, all trade or DBA names, U.S. address, state of formation, and IRS taxpayer or employer identification number.
Beneficial owner information:
The full legal name, date of birth, residential address, and a unique identifying number on a current form of I.D. (passport, driver’s license, etc.) for any/all beneficial owners or
Those individuals’ FinCEN Identifier (a personalized I.D. number), if they have one.
A beneficial owner exercises “substantial control” over the company or owns/controls at least 25 percent of its ownership interests. These people could be senior officers, someone with the authority to appoint or remove senior officers or a majority of directors, an important corporate decision-maker, and/or someone with any other form of substantial control identified by FinCEN’s Small Entity Compliance Guide.
Company applicant information: For entities created after January 1, 2024, a report must include either information or a FinCEN Identifier relating to the individual(s) who filed the paperwork establishing the company (the direct filer) or who directed or controlled the filing action (an attorney, paralegal or third-party service company).
Deadlines and penalties
Initial reports from all reporting companies formed before the end of 2023 must be filed by January 1, 2025. Companies formed during 2024 have 90 days to file their initial reports, and companies created in 2025 or later will have 30 days to file.
Whenever the above information changes, the reporting company must file an updated report within 30 days. This also applies to newly exempt companies; they need to file an updated report stating so. Also, suppose a reporting company discovers that any information it has submitted is inaccurate. In that case, it must file a corrected report within 30 days.
Beneficial owners of any entity that fails to report by the deadline could face civil penalties of up to $591 per day per entity that the violation continues and criminal penalties of up to $10,000 and/or two years in prison.
The burden of CTA compliance
Compliance with CTA is essential, but that doesn’t mean it hasn’t already created a burden for entities and their leaders. It all starts with awareness. Many entities may not have the systems in place and/or the proper advisors to flag their obligations under CTA for them. As a result, they may not hear about CTA or their responsibilities under the law until it’s too late.
Second, it can take significant time and effort to file proper reports. Some entities with simpler ownership structures could complete the form in under one hour or have someone do it for a minimal fee. Other entities may be much more complex, and senior officers and/or their outside counsel may be responsible for hundreds of filings with several variables and dozens of permutations. Collecting and inputting all the correct information and managing/storing it properly would be a massive project that could take weeks or months to complete.
Also, if/when any of that information changes and updated/corrected reports need to be filed, the process would have to start all over again. Ongoing compliance will be a much bigger issue for reporting companies than the initial filing process.
All told, the time and effort to comply with CTA could add up quickly. In some organizations, it could easily require an employee’s or an entire team’s full-time attention on filings, updates, corrections, and data management. To minimize costs and human errors related to filing, some organizations have decided to invest in tools that automate and standardize CTA processes.
It’s essential that you determine whether or not your organization needs to file a BOI report under the CTA and then correctly do so (if needed) in a timely fashion. It’s also important that you fully understand your obligations under the law and budget/find the resources to ensure ongoing compliance. Of course, the more efficiently you can do all of this, the less distracted you will be from business-critical activities.
Steven Friedman is CEO of Platinum Filings.
This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.
To contact the editor responsible for this piece: zeb@hwmedia.com
