As we roll into 2024, the Corporate Transparency Act (CTA) enacted two years ago will start to affect small businesses for the first time. This law from the Financial Crimes Enforcement Network (FinCEN) requires small businesses to report information to the U.S. government about who owns and controls them. The goal is to crack down on those who conceal financial crimes under the guise of small businesses.
If you are a U.S.-based small business established through a legal entity, such as an LLC, the Corporate Transparency Act likely applies to you.
Here are the parameters of businesses required to file under the CTA:
- Corporations, limited liability companies and any other entities created by filing a document with a secretary of state or any similar office in the United States.
- Foreign entities (including corporations and limited liability companies) that have registered to do business in the U.S. by filing a document with a secretary of state or any similar office.
Some entities not covered in this list include sole proprietorships, tax-exempt entities and general partnerships, such as estate planning trusts.
The CTA was established for good reason –– to prevent bad actors from shielding their identities to protect capital, says William Kambas, partner, Withers Bergman LLP. “It’s an anti-money laundering law. That makes closely held smaller business entities the exact target for the new law.”
The goal of the CTA is to identify who owns and manages all small businesses. From the Federal tax perspective, knowing who is involved in all businesses can help detect any possible illicit use of an entity.
What beneficial ownership information do you report for the Corporate Transparency Act?
The following information needs to be reported to FinCEN if you are obligated to share the beneficial ownership information of your business under the CTA.
- Legal name of the company
- Any trade names (doing business as –– DBA)
- Address of principal place of business (cannot be a PO Box)
- Tax identification number
- All beneficial owners and managers who exercise substantial control or own 25% or more of the company
- Legal name
- Date of birth
- Residential address
- Social security number, passport or driver’s license number
- Copy of a government-issued photo identification document
Once you file with FinCEN, the information will be confidentially stored in a secure database only available to Federal, State and local officials.
There are civil penalties for willfully not filing, including $500 a day, up to $10,000. Criminal penalties include willful neglect and gross negligence. “That would be hard to enforce right now, to speak bluntly because if you do due diligence and come up with a reasonable position of what’s being filed, you’re likely to be okay. They just want people to do their best to submit their forms,” says Kambas.
Deadlines for the Corporate Transparency Act
Companies created or registered to do business before January 1, 2024 will have until January 1, 2025 to file the initial beneficial ownership information report. However, if your existing healthcare business decides to make changes to your business entity, such as changing management or ownership, you’ll need to file a new CTA form to reflect the change.
Newly formed business entities in 2024 will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial beneficial ownership information report. According to FinCEN, “This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.”
Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.”
How do I file a beneficial ownership information report for the Corporate Transparency Act?
You can file the report electronically through FinCEN’s secure filing system. The system is still being developed and will be available before your report must be filed.
The form to report beneficial ownership information is not yet available. Once available, information about the form will be posted here. The forms are expected to be easy for business owners to manage independently. However, you can consult with your attorney, accountant or your insurance broker at CM&F Group with any questions.
There is no fee for filing the report. In future years, there is only an annual reporting requirement if there are updates or corrections.
Once you file a report, in the case that there is a change to your company’s required information or beneficial owners, your company must file an updated report no later than 30 days after the date of that change.
Reporting your beneficial ownership information under the new Corporate Transparency Act in 2024 should be quick and easy. Whether your healthcare business exists before 2024 or launches after the New Year, be sure to follow the filing requirements to avoid civil and criminal penalties that could come with intentionally disregarding your beneficial ownership information reporting obligations.
Kambas expects FinCEN will be reasonable when it comes to small business owners who have questions about the new filing rules. “They expect there to be questions and as long as you’ve looked at the rules and come up with a reasonable position that’s not directly contradictory to the rules, they’re going to be understanding for at least for a number of years.”
FinCEN will continue to provide information and updates related to the reporting requirements on its webpage at www.fincen.gov/boi. Subscribe here to receive updates via email from FinCEN about reporting obligations.