regulatorynews
BY JAMES C . COUNTS II , CPA AND ANDREW MATTSON , CPA
New Requirement
Corporate Transparency Act Insights for Business Entities the Corporate Transparency Act ( CTA ) was enacted into law as part of the National Defense Act for fiscal year 2021 . The CTA mandates that millions of entities report their beneficial ownership information ( BOI ) to the Financial Crimes Enforcement Network ( FinCEN ). The purpose of this reporting is to identify entities that are being used for illegal purposes . FinCEN estimates that more than 32 million entities will be subject to the reporting requirement . This article is a overview of the provisions in the CTA and is not a full disclosure of the new and complex requirement .
Before getting into details about this requirement , unless you are an attorney , you should strongly consider whether or not to advise anyone if they are or are not required to have a reporting requirement . Beyond the complexity of the BOI reporting requirements , another reason for caution is the criminal penalty regime , which is discussed below .
The Basics Who is required to report under the CTA ’ s BOI reporting requirement ? All domestic and foreign entities that have filed formation or registration documents with a U . S . state ( or Indian tribe )— unless they meet one of 23 enumerated exceptions . More information on the exceptions is available at fincen . gov / boi .
Notwithstanding the exceptions , the BOI reporting requirements target smaller entities that , in general , have less ability to comply than larger organizations . In other words , entities who ’ s primary , or only , outside adviser is a CPA practitioner are targeted by the BOI reporting requirements .
When must companies file ? New entities ( created / registered after Dec . 31 , 2023 ) must file within 30 days . Existing entities ( created / registered before Jan . 1 , 2024 ) must file by Jan . 1 , 2025 . Reporting companies that have changes to previously reported information
or discover inaccuracies in previously filed reports must file within 30 days .
What information do companies need to report ? Each company must report their full legal name of the reporting company and any trade or DBA names , business address , state or tribal jurisdiction of formation or registration and IRS TIN . In addition , each reporting company must include the following details on its beneficial owners and for newly created entities : its company applicant ( s ) name , birthdate , address and unique identifying number and issuing jurisdiction from an acceptable identification document ( e . g ., driver ’ s license or passport ) and an image of the document .
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 .
Who is a company applicant ? The individual who files the document that creates the entity or who first registers the company to do business in the U . S ., and the individual primarily responsible for directing or controlling the filing of such a document .
What are the penalties for noncompliance with the statue ? Civil penalties are up to $ 500 / day that a violation continues . Criminal penalties include a $ 10,000 fine and / or up to two years of imprisonment .
What else do I need to be aware of ? There has been some debate about whether non-attorney practitioners advising clients on the requirements of the CTA or the BOI reporting form , as well as the actual preparation of the BOI filing , could be considered the unauthorized practice of law . The reason for this concern is that the CTA is part of Title 31 of the U . S . Code ( The Internal Revenue Code is a part of Title 26 ). Practitioners may wish to contact their state regulators , insurance carriers or legal counsel to further discuss this issue .
What other considerations are there before I engage with a client ? Consider updating engagement letters , organizers and checklists to clearly state whether services relating to the CTA are included .
Why a New Requirement ? The goal of registry per FinCEN is “ to assist law enforcement in unmasking shell companies used to hide illicit activities , add valuable context to financial analysis in support of law enforcement and tax investigations and FinCEN example : Russians using shell companies to evade Ukraine invasion sanctions .”
A new system to accumulate this information is the “ Beneficial Ownership Secure System ( BOSS ).” It is a beneficial ownership database being built by FinCEN . It should be useful to financial institutions , but the reporting company has to consent ( although one would think this will be functionally mandatory to get an account ). Access regulations are still being written .
12 CALIFORNIA CPA JULY 2023 www . calcpa . org