Transparency in Action: The Corporate Transparency Act and its Impact on Businesses

The Corporate Transparency Act is a significant piece of legislation that aims to increase transparency and accountability among companies operating in the United States by combatting financial crime and corruption. This new 2021 law, effective January 1, 2024, will significantly impact businesses of all sizes and across all industries. It is important for all taxpayers to understand and comply with its requirements. The key provisions include:

• Beneficial ownership disclosure: The act requires certain reporting companies (defined below) to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN) of the Department of Treasury by a specific date (outlined below). The beneficial ownership information will include the identity of the individuals who own or control more than 25% of a company, as well as any individuals who have significant control over the company’s management or policies.
• Who is responsible to report?
  • Domestic corporations, limited liability companies, and other similar entities created by filing under state law
  • Foreign corporations, limited companies, and other similar entities formed under foreign country law and registered to do business in any U.S. state
• Due date of the initial reports:
  • Reporting companies formed before January 1, 2024, will have until January 1, 2025, to file the initial report disclosing the required information.
  • Reporting companies formed on or after January 1, 2024, will have 30 days to file the initial report disclosing the required information.
• Due date of any beneficial ownership reporting updates: After filing the initial report, existing and new reporting companies will have 30 days to file updates regarding a change in their beneficial ownership information.
• Information due with each report:
  • Name
  • Date of birth
  • Address
  • Passport number, driver’s license number, or other acceptable identification, together with a copy of the ID document
    • If individuals do not want to provide this information to the business, they can apply to FinCEN for a unique number called a FinCEN Identifier.  They must file an application with FinCEN reporting the same information. The individual can provide the FinCEN Identifier to the reporting company, which can then include the FinCEN Identifier on their BOI report. 
• Exemptions: The act includes exemptions for certain types of reporting companies and beneficial owners.
  • • • Reporting company exemptions:
        • • Banks and bank-type entities
          • Tax-exempt entities
          • Accounting firms registered under § 102 of Sarbanes-Oxley Act of 2002
          • Publicly traded companies
          • Large operating companies
            • Defined as companies with 20 or more full-time U.S. employees, more than $5 million in U.S.-obtained revenue, and a physical operating presence in the U.S.
          • Subsidiaries of an exempt entity
          • Certain inactive entities in existence on or before January 1, 2020
      • Beneficial owner exemptions:
        • Minor children
        • Nominee, intermediary, custodian, or agent on behalf of another
        • Employees (not senior officers)
        •  Creditors
        • Individuals with interest only through right of inheritance (future interest)
• Penalties for non-compliance: The act includes penalties for companies that fail to disclose their beneficial ownership information or file required reports. Willfully providing or attempting to provide false information or willfully failing to report updates can result in:
  • Civil penalties – $500 for each day violation continues or has not been remedied
  • Criminal penalties – not more than $10,000, imprisonment of not more than two years, or both

• Access to beneficial ownership information: The act allows certain government agencies and financial institutions to access the beneficial ownership information that companies are required to disclose. This will enable them to detect and prevent financial crimes.
• Implementation: The act will be implemented by the Department of Treasury, which will issue regulations and guidance to help companies understand and comply with its requirements.

The requirements of this act are far-reaching, and failure to comply is steep. It is important to plan proactively with your advisor to ensure compliance. Please contact a WG advisor to discuss how this act may impact your business.