Congress passed the Corporate Transparency Act (CTA) which went into effect at the beginning of this year. It requires the majority of small businesses to report who the beneficial owner of their enterprises to the Financial Crimes Enforcement Network or FinCen.
Earlier this year, a federal district court in Alabama ruled that the CTA was unconstitutional and enjoined the government from enforcing it. The ruling determined that small businesses are unduly burdened by the requirement of providing highly personal information to the government.
This ruling only affects the 65K members of the National small Business Association that were a part of the legal action. The requirement for the rest of us to file has not changed in any way, shape, or form.
1 – Who Is A Beneficial Owner?
A Beneficial Owner is anyone who directly or indirectly exercises substantial control over or owns or controls at least 25 percent interest in a business. This includes…
An individual who is a senior officer;
An individual has authority to appoint or remove certain officers or a majority of directors
An individual is an important decision-maker;
An individual has any other form of substantial control.
2 – What companies are required to report under the CTA?
A company may need to report information about its beneficial owners if it is
A corporation, a limited liability company, or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Tribal jurisdiction; or
A foreign company registered to do business in any U.S. state or Tribal jurisdiction by such a filing.
3 – Who is exempt from filing BOI?
There are 23 types of exempt entities. These entities are already subject to stringent federal and/or state regulations for reporting beneficial ownership. These exempt entities include, but are not limited to:
Accounting firms
Banks
Brokers / securities dealers
Credit unions
Governmental authorities
Insurance companies
Investments companies / advisors
Public utilities
Tax-exempt entities
Venture capital fund advisors
4 – What information is required?
A reporting company is required to provide basic information for itself and all beneficial owners.
For the reporting company, the required information includes legal name, trade names, address, jurisdiction of registration, and its taxpayer identification number.
For the beneficial owners, the required information includes name, date of birth, residential address, and an identifying number from an identification document such as a passport or driver’s license.
5 – What happens if you don’t file by the deadline?
Failure to file may become extremely costly, with civil penalties starting at $500 per day and criminal penalties of up to $10,000 and/or two years in prison.
Completing your registration can be done through the following link.
https://fincen.gov/boi
Let me leave you with this…
We’re finally done with tax season and about six weeks ahead of December. Once we have a nailed down November Financial Statement, I’ll be able to do your final tax planning before the 2024 Income Tax Season begins.
As such, the majority of my columns in the next six weeks will be in preparation for that tax planning session. This column on the BOI Requirement is the first in that series.
Filing for the BOI Requirement isn’t easy. It’s not the sort of thing where you’ll be able to flip on your computer New Year’s Eve morning and just get it done. This isn’t a 30 second enterprise.
This will probably take several tries before you get it right and are able to download all of the forms necessary to complete it. Again, this isn’t an easytask.
The intent of the law is to help FinCen crack down on small businesses that are being used to fund terrorist operations both domestically and abroad. They assume that if they actually know who the beneficial owner is of all domestic enterprises, that it will be easier to stop this activity and lock up the individuals behind it.
The problem is they will never get everyone to comply.
It’s estimated that there are over 30M small businesses that now must register. Most of those businesses don’t have a decent accountant informing them of this new law. Some of these entrepreneurs couldn’t read this column even if they tried.
So, as usual, this will probably just turn into more smoke and mirrors.
But no matter how ridiculous this law happens to be, and how egregious the requirement is, does not relieve any of us of this responsibility. It’s better to dig in early, and get it done, before its too late and turns into an issue.
Please call my offices with your questions.
We’re all going to get through this. Let’s get through it together.
Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,
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Sincerely yours,
Chris Amundson
President
Accounting Solutions Ltd.
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