The Corporate Transparency Act (CTA) was passed in 2021 with the goal of requiring the disclosure of corporate ownership and the prevention of money laundering and the financing of terrorism. As a result, most U.S. corporations will be required to file Beneficial Ownership Information (BOI) with the Department of the Treasury’s Financial Crime Enforcement Network (FinCEN).
Failure to comply with the CTA includes harsh penalties. A person who willfully violates BOI reporting requirements can face civil penalties up to $500 per day the violation continues and could additionally be faced with up to two years in prison and a standalone fine that could be as much as $10,000. False filing or refusal to correct inaccurate information will also incur the same penalties.
Companies that already existed on Jan. 1, 2024, have until Jan. 1, 2025, to complete the online filing form. Companies and corporations founded in between those two dates will have 90 days to do the same, and starting next year all new companies will have 30 days to file.
BOI consists of information, which can be used to identify the specific individuals who own or control a company, either directly or indirectly.
Companies will need to provide FinCEN with their name, all trade names, a current street address, the state or tribal territory where it was formed, and their Taxpayer Identification Number. The beneficial owners themselves will need to provide their legal name, date of birth, residential address, and the ID number from a state-issued document or credential such as a driver’s license or passport.
With this information, federal authorities will be able to rapidly identify the identity of the owner or operator of a business. While often possible to determine with current databases, the centralized collection information will make it significantly harder to obscure ownership information from the government. There may also be illegal operations identified through the process of implementing the law.
“With this step we are closing a loophole and sending a clear message: The United States is not a haven for dirty money,” said Treasury Secretary Janet Yellen during Jan. 8 remarks at FinCEN’s offices. “Around the world lack of transparency, specifically due to opaque corporate structures, makes it easier to conceal illicit activity. Criminals utilize frightened shell companies to conceal and launder their ill-gotten gains.”
The CTA was passed with bipartisan support, with both Democratic Sen. Sherrod Brown of Ohio and Florida’s Republican Sen. Marco Rubio speaking in favor of the bill.
“Unsurprisingly, anonymity can lend itself well to hiding nefarious activity,” said Rubio while initially introducing the bill in 2017. “We must work to ensure that law enforcement has the basic information, tools, and authorities at its disposal to identify and disrupt illicit activities affecting our communities and our national security, whether it’s human trafficking, health-care fraud, transnational corruption, or terrorism financing.”
“We need to strengthen, reform and update our nation’s anti-money laundering laws, and put an end to abuses by criminals of anonymous shell companies-these reforms are long overdue,” said Brown when the CTA was included as a provision of the National Defense Authorization Act for 2021. “Updating and strengthening our money laundering and corporate transparency laws and insisting on tighter enforcement will finally provide for a 21st-century system to combat money laundering-related financial crimes, estimated by Treasury to generate about $300 billion per year in illicit proceeds.”
According to George May, the vice president of the small-business segment at the consulting firm Wolters Kluwer and its subsidiary the Corporate Trust Corp., the need to file BOI information may catch many people unaware, particularly small-business owners who don’t have a designated compliance officer or experience dealing with regulations. May used a barber shop as an example, observing that “you probably have your barber’s license hanging on the wall, and clearly you’re going to file your taxes like a good citizen and do all the other things we understand are expected. You would have created an entity, probably an LLC that backs the organization, probably years ago.”
“But other than that,” May continued, “maybe pulling a certificate of good standing or filing an annual report every year, maybe something with the health department… you just cut hair and go home. You don’t have to think about this stuff. Now all of a sudden, they’re laying another thing on the stack that you have to deal with. You think about a small-business and the owner may think ‘that’s for the big timers. That’s not for me.’ That’s not the case anymore because of the government’s position.”
Many small-businesses in Fairfield and Westchester counties agreed with May’s observation. Of a half dozen small businesses contacted at random by Westfair Business Journal, ranging from retailers to manufacturers and plumbers, none had heard of the legislation and several expressed doubt that it would apply to them. All but one declined to go on record with their reactions.
Daniel Fendler, the White Plains-based owner of Lucid Liquid Candles, was surprised by the news that he would have to report ownership information to the federal government. He had only recently taken over the business, which makes paraffin burning lamps that behave like candles, from his father, the founder.
“I want to fill it out,” Fendler said. “I want to be in compliance, we don’t have anything to hide. It’s just a matter of being aware of it and then knowing how to go about giving them the information that they would like. I think for a lot of small business owners there’s a tremendous amount of responsibility just to run the business and then you have all these compliance rules and regulations. It’s a lot, it’s not a matter of wanting to break any rules, it’s just being aware of what the rules are and having the time and resources to do all the stuff.”
Fendler indicated that he intended to file his BOI as soon as possible.
Wyatt Bosworth, the associate counsel with the Connecticut Business and Industry Association (CBIA), noted that his organization was working to inform small businesses in Connecticut.
“Awareness of the issue is definitely tough, especially given that companies that existed before January first of this year have to January first of next to file their report,” he said. “It’s incredibly important that the business community continues to educate small businesses on their reporting requirements under this law. As time goes on and as companies change and morph into new entities, that’s when I think a lot of the compliance issues will come. Then the onus is on the company to update the federal government within 30 days of those changes. I think that is where a lot of the compliance issues will really come forward.”
Bosworth stressed that while the initial application may not be complicated, it makes sense to involve any professionals who advise or inform the business with the process to help ensure that the information is current even as the company changes. He advised that CPAs are likely the best professionals to consult.
Eliot Bassin, a CPA and partner-in-charge in the tax and advisory practice at Stamford’s Bergman & Co., said he and his colleagues had found themselves working to inform their clients of the CTA and its filing requirements.
“It’s something that very much flew under the radar when it was announced,” he said. “There are a few clients that have been aware of it mostly through trade associations that have raised the issue, but very few clients who are on their own are coming across information regarding it.”
“I think to a certain degree it’s a little bit of a hot potato issue,” Bassin said about why so many businesses have been caught unaware. “What I mean by that is the law firms don’t necessarily want to be bothered dealing with it, and for the accounting firms there is a lot of discussion within the industry would constitute the unauthorized practice of law because it’s not actually part of the Internal Revenue Code. The way the CTA was written, it’s actually part of the Bank Secrecy Act. Because of that I think nobody wants to take ownership over the issue.”
Dr. Stephen Henn of the economics faculty at Sacred Heart University in Fairfield noted that as a federal law impacting millions of businesses nationwide, the CTA will likely have the same impact in every region.
“I think it is because this is primarily directed at businesses under $5 million in revenue that do not have a typical government reporting obligation,” Henn said of why so many business owners were being caught unaware by the law. “Exempt companies include banks, brokers, most trusts, and small public companies. Many regulations are structured in the opposite manner: they exempt small businesses from reporting. That, and the multiyear delay in coming into effect, meant the CTA has not been top of mind. Finally, this comes across as fairly draconian and, given the economic trauma many small businesses have felt during Covid and the economic headwinds of the past three years, it is no wonder the government has kept this quiet.”
Henn also allowed that while many business owners may still be in the dark about the CTA, FinCEN’s claims about the forms being simple enough that owners can file themselves ring true.
“I filed for my LLC, and it took about 10 minutes,” he said. “You just need to have the Tax Identification Number for the entity and an uploaded image of your ID, a driver’s license or passport. Compared to other reporting obligations, it is fairly straightforward.”
