The CTA and BOI Reporting to FinCEN

Small businesses have a new reporting requirement looming on January 1, 2025. Before we dig into the details of the new report, let's break down some key terms:

• Corporate Transparency Act (CTA): This 2021 U.S. federal law aims to increase transparency and prevent financial crimes like money laundering and tax evasion.
• Beneficial Ownership Information (BOI): This refers to the details about individuals who directly or indirectly own or control a company.
• Financial Crimes Enforcement Network (FinCEN): This U.S. Treasury Department bureau works to protect the U.S. financial system from illegal activities such as money laundering and terrorist financing.

The CTA has been controversial since it was enacted and has faced several lawsuits. On March 1, 2024, a federal district court in Alabama ruled the act unconstitutional. The court found that the CTA exceeded Congress's authority under the Commerce Clause and the Taxing Clause. This ruling, however, is not binding nationwide and only applies to the specific plaintiffs in the case. The U.S. Department of Justice has appealed the decision, and the case is currently pending.

While the ruling did not apply to everyone, many experts recommended a delay in filing reports until the end of 2024, in case the filing requirements were eliminated or postponed. The AICPA has consistently expressed their concerns about the requirement in letters to Congress and they have requested a delay of the deadline. Unfortunately, there are no signs yet that Congress will act before the reporting deadline of January 1, 2025

Penalties for non-compliance with the Corporate Transparency Act can be significant (Up to $10,000 and two years in prison!), so we urge everyone to review the filing requirements. While you may not consider yourself a business owner, you could still be subject to these requirements. If you established an LLC for a Schedule C business or for a rental property, and you registered that business, you likely need to file.

Here are the steps we recommend you take:

1. Determine if you are required to file by reviewing these instructions under C.1. The flowchart below might be helpful. Be sure to also review the 23 exemptions from those requirements to make sure you don’t qualify for one.
2. If you are required to file, determine the beneficial owners of your business by reviewing these instructions under D.1. In general, a beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests. Keep in mind that if a trust is a beneficial owner, the rules look through the trust and the following conditions indicate that an individual owns or controls ownership interests in a reporting company through a trust:
   • a trustee (or any other individual) has the authority to dispose of trust assets;
   • a beneficiary is the sole permissible recipient of income and principal from the trust, or has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or
   • a grantor or settlor has the right to revoke the trust or otherwise withdraw the assets of the trust.
3. Gather the information required to be reported for each beneficial owner. The easiest way to do this is to ask the owners to obtain their own FinCEN ID. This can be done on the FinCEN website here, and there are detailed instructions here. I’ve done this myself and it took less than ten minutes. If your owners don’t have a FinCEN ID, you will need the following information:
   • Name
   • Date of birth
   • Residential address
   • Social Security Number (SSN) or Taxpayer Identification Number (TIN)
   • Form of identification (e.g., driver's license, passport, etc.) with issuing jurisdiction and identifying number
   • An image of the identification document
4. Make sure you have all of the company information you need to report. Here’s a list of what you need:
   • Full Legal Name
   • Current street address
   • Any trade or "doing business as" names
   • IRS Taxpayer Identification Number (TIN)
   • Country or state jurisdiction of formation
5.  File your report. You can do that online here. I have gone through this process and if you have all of the information listed above, the actual filing takes less than 15 minutes. If you would like assistance with filing the report, we recommend Strategic Tax Planning. They have a DIY option for $299 that will guide you through the filing or a white glove service for $750 where you’ll have virtual access to a live CPA or attorney to walk you through the filing.
6. After filing, save a copy of the transcript for your records. Make sure you keep this on file to prove that you filed this report on time.
7. If you make a mistake on the filing, file a correction as soon as possible. If you complete the filing and later notice a mistake, you can go back and file a new report. The first screen in the filing process has an option for the type of filing to “correct prior report”.

While these reporting requirements might seem daunting at first glance, the actual report filing is relatively easy. If you have questions about your specific situation, feel free to reach out to us or contact the experts at Strategic Tax Planning directly.

-Chris Benson, CPA, PFS

The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. 

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