The Corporate Transparency Act and Beneficial Ownership Reporting

The Corporate Transparency Act (CTA) was enacted as part of the 2021 National Defense Authorization Act and amends the Bank Secrecy Act.  The CTA was intended to close a perceived information gap related to money laundering, other financial crimes and illicit activities.  As part of this act, the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the Treasury Department, published rules related to the reporting of beneficial ownership or control of certain companies. Starting January 1, 2024, certain businesses in the United States will be obligated to submit a Beneficial Ownership Information (BOI) report to FinCEN.

Fundamentally, the CTA is designed to bolster the integrity of the U.S. financial system and enhance national security. It introduces a strategic approach to unmask anonymous shell companies often used by illicit actors to launder money, evade taxes, and commit other financial crimes. The new rule will make it increasingly difficult for criminals to exploit opaque corporate structures, thereby reinforcing the financial transparency of the U.S. economy.

This new requirement shines a spotlight on beneficial owners – individuals who either exercise substantial control over a company or own or control at least 25 percent of the ownership interests. The BOI report will require comprehensive information about each beneficial owner. This may include their full legal name, date of birth, current residential street address, and a unique identifying number from an acceptable identification document, such as a U.S. passport, driver’s license, or a state ID.

Entities affected by this new rule include domestic and foreign corporations, limited liability companies (LLCs), and other business entities formed by filing a document with a secretary of state or similar office. However, several organizations are exempt from the BOI reporting requirement, including tax-exempt entities, publicly traded companies, banks, credit unions, accounting firms registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002, and large operating companies with over $5 million in gross receipts or sales in the previous tax year and more than 20 full-time U.S. employees.  While the list of exceptions to the reporting requirements are numerous, many middle market companies and small business entities owned by individuals are likely not exempt from the filing requirements.

After initial filing, the BOI report must be updated within 30 days of any changes in beneficial owners or company information. Non-compliance with this new rule carries significant penalties, including civil fines of up to $500 per day per violation and criminal penalties of up to $10,000 and/or up to two years in prison.

Please refer to FinCEN’s website for full details and filing/exemption requirements. GreerWalker encourages clients that may be impacted by these rules to consult with their attorney to ensure that they are in compliance with these new requirements.

About GreerWalker LLP

GreerWalker LLP provides tax, accounting, and advisory services focused on the needs of privately-held middle-market companies and their owners throughout the US and around the globe.

Our affiliate GreerWalker Corporate Finance LLC offers exit planning and merger and acquisition services to provide a complete, integrated solution for middle market companies and their owners.

Customized wealth planning for every stage of life is offered through our strategic partner, Choreo, LLC. Choreo, LLC is an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration as an investment adviser does not imply a certain level of skill or training of the adviser or its representatives.

With over 135 associates, we are one of the ten largest CPA firms in our region and among the top 200 CPA firms in the United States. We have repeatedly been recognized as one of the nation’s “Best of the Best” accounting firms by Inside Public Accounting based on our overall superior financial and operational performance.

The information contained herein is general in nature and based on authoritative guidance that is subject to change. Neither GreerWalker LLP nor GreerWalker Corporate Finance LLC (collectively, “GreerWalker”) guarantee the accuracy or completeness of any information and are not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. GreerWalker assumes no obligation to inform the reader of any changes in tax laws, regulations, accounting standards, or other factors that could affect information contained herein. This publication does not, and is not intended to provide legal, tax or accounting advice, and readers should consult their advisors concerning the application of tax laws or accounting guidance to their particular situation. Any tax analysis in this publication is not advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.