Corporate Transparency Act

Mar 5, 2025

Beneficial Ownership Reporting Requirement

Insight: Critical Update on the Corporate Transparency Act (CTA) — Beneficial Ownership Information (BOI) Reporting Requirement

Key Highlights:

Entities organized in the U.S. or outside the U.S. may be subject to the CTA’s reporting requirements.
On March 2, 2025, Treasury announced that not only will it not enforce any penalties or fines associated with the BOI reporting rule under the existing regulatory deadlines, but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either.
The Treasury Department will further be issuing a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only.
While the Treasury’s announcement is a welcome step forward, businesses should remain alert. It is anticipated that additional information and clarity will be forthcoming in the weeks and months ahead to address specific reporting requirements and related deadlines for foreign reporting companies.
Foreign reporting companies (e.g., foreign companies that are registered to do business in the U.S.) should closely monitor CTA developments, seek legal guidance as needed, and develop a plan to address this new requirement, where applicable.
An interim final rule, which will extend the BOI reporting deadlines, is expected to be issued by March 21, 2025.
The CTA requirement is not an accounting or tax-related requirement. In evaluating and interpreting the application of the CTA rules to your business situation, we recommend also seeking legal guidance.

Background:

Starting Jan. 1, 2024, a significant number of businesses are required to comply with the Corporate Transparency Act (CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (BOI) of certain entities from people who own or control a company.

It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity.

The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions.

Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.

Federal and legislative actions impacting BOI reporting requirements

There have been ongoing legal developments and federal actions regarding the constitutionality and enforceability of BOI reporting. It is important to monitor developments in this area.

Meanwhile, the following sections provide information about the BOI requirement as outlined in the CTA.

What entities are required to comply with the CTA’s BOI reporting requirement?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements.

Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.

Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

Are there any exemptions from the filing requirements?

There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

a) Employ more than 20 people in the U.S.

b) Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and

c) Be physically present in the U.S.

Who is a beneficial owner?

Any individual who, directly or indirectly, either:

· Exercises “substantial control” over a reporting company, or

· Owns or controls at least 25 percent of the ownership interests of a reporting company

An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

The detailed CTA regulations define the terms "substantial control" and "ownership interest" further.

When must companies file?

The CTA provides for different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.

· New entities (created/registered in 2024) — must file within 90 days

· New entities (created/registered after Dec. 31, 2024) — must file within 30 days

· Existing entities (created/registered before Jan. 1, 2024) — Jan. 1, 2025

· Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

On Feb. 19, 2025, FinCEN extended the BOI report filing deadlines to March 21, 2025, after a nationwide injunction was lifted. Companies with deadlines later than March 21, 2025, were to follow their original deadlines.

On Feb. 27, 2025, FinCEN announced it would not enforce actions against companies missing current deadlines, with an interim final rule expected by March 21, 2025. On March 2, 2025, Treasury announced that U.S. citizens and domestic reporting companies would not face fines or penalties for missing BOI report deadlines after new deadlines are set.

What sort of information is required to be reported?

Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).

Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

Risk of non-compliance

Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $606 per day and up to $10,000 with up to two years of jail time. Note, however, that on Feb. 27, 2025, FinCEN announced that it will not impose fines or penalties, nor will it take any enforcement actions against companies for failing to file or update BOI reports by the current deadlines.

An interim final rule, which will extend the BOI reporting deadlines, is expected to be issued by March 21, 2025. Following this announcement, on March 2, 2025, Treasury announced that U.S. citizens and domestic reporting companies will not be subject to fines or penalties for failing to file BOI reports after new reporting deadlines are set.

For more information about CTA, or to access the information submission portal visit the FinCEN website.

The CTA requirement is not an accounting or tax-related requirement. For this reason, in evaluating and interpreting the application of the CTA rules to your business situation, we recommend that you also legal guidance.

Disclaimer:

The contents of this insight are intended for general information only. illumina CPA Group, Inc. is not, by means of this communication, rendering professional advice or services. Before making any decisions or taking any action that may affect your finances or your business, you should consult a qualified professional adviser.