You’re not a crook, but the federal government isn’t just going to take your word for it. That’s why the U.S. Corporate Transparency Act (CTA) was conceived. With the CTA’s new beneficial ownership information (BOI) reporting requirement looming, it’s time for most small business owners to act or potentially suffer painful consequences.
Steven Bankler recently joined Frost Bank and James D. Rosenblatt of the Rosenblatt Law Firm to give San Antonio small business owners tips on the CTA and how its BOI reporting requirements may affect them. Here are a few key points to know:
What is BOI?
The CTA’s beneficial ownership information (BOI) reporting requirement aims to give the Financial Crimes Enforcement Network (FinCEN) a way to expose entities that are companies used to commission certain crimes. The filed information will be available to certain federal, state, local, and Tribal agencies, Department of Treasury officials, foreign law agencies, financial institutions, and federal regulators. In FinCEN’s words, it’s an effort to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.” Fun fact: The CTA was enacted in 2021, bipartisanly during the Trump administration, with the deadline for compliance now approaching.
Who is affected?
Most active U.S. small businesses, including LLCs and S Corps, will need to report. There are 23 exemptions, including companies that have FILED a tax return reporting more than $5 million annually AND have more than 20 full-time employees.
What is a top mistake to avoid?
First, understand that every single entity you own is treated separately for reporting purposes, even if those businesses are related. For example, even if a main business is exempt, related companies, including real estate entities, may need to report. Beneficial owners of irrevocable trusts may also need to report.
What else might business owners overlook?
The deadlines are unusual and confusing. Many business owners will start a new entity or make changes to an entity during the year and not tell their CPA until tax time. That could be a huge mistake regarding BOI because entities originating in 2024 only have three months to report, and entities originating in 2025 or after have a mere 30 days to report. Waiting for your CPA to ask if you’ve completed it could cost you dearly.
What is the penalty?
There are steep, escalating fines and possible jail time for noncompliance. A willful violation may be subject to civil penalties of up to about $500 (adjusted for inflation) for each day the violation continues. A criminal penalty of up to $10,000 and up to two years’ prison time may also be imposed. This can include willfully not filing, filing false information, or failing to correct or update information.
What do you need to do?
Obtain a unique FinCEN identifying number (FinCEN ID) and file your BOI information by the following deadlines:
- Established Businesses: Reporting companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial report.
- New Businesses: Reporting companies created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file their initial report.
- Future Businesses: Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial report.
Will the government proactively assist me?
No, and be wary if you are contacted. Scammers are posing as authorities, asking for information or even payments related to BOI requirements. Do not respond to unsolicited emails, links, calls or other communication offering assistance or insinuating noncompliance, particularly if a fee is involved (there is no fee to file BOI directly with FinCEN). FinCEN recommends that “reporting companies that need help meeting their reporting obligations can consult with professional service providers, such as lawyers, accountants, or enrolled agents.”
The CTA’s beneficial ownership reporting requirement is a significant development for small businesses. By understanding the rules and deadlines, business owners can avoid costly mistakes and ensure compliance with this new law. Feel free to contact us with questions.