Small Business – Corporate Transparency Act – New Reporting Requirement
Millions of small businesses are formed within the United States each year as corporations, limited liability companies, or other corporate structures. These businesses play an essential and legitimate economic role. Small businesses are a backbone of the U.S. economy, accounting for a large share of U.S. economic activity, and driving U.S. innovation and competitiveness. In addition, U.S. small businesses generate jobs, and in 2021 created jobs at the highest rate on record.
Few jurisdictions in the United States, however, require legal entities to disclose information about their beneficial owners—the individuals who actually own or control an entity—or individuals who take the steps to create an entity. A lack of uniform beneficial ownership information reporting requirements at the time of entity formation or ownership change hinders the ability of law enforcement to swiftly investigate those entities created and used to hide ownership for illicit purposes. This lack of transparency creates opportunities for criminals, terrorists, and other illicit actors to remain anonymous while facilitating fraud, drug trafficking, corruption, tax evasion, organized crime, or other illicit activity through legal entities created in the United States.
To address these issues, the US Congress passed the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021.
The CTA took effect January 1, 2024, and imposes new federal filing requirements on most corporations, limited liability companies (LLCs) and other business entities.
Corporations, LLCs, and other entities subject to the CTA are called “reporting companies.” People who form new reporting companies must file a beneficial ownership information (BOI) report with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) within 90 days of forming the company.
The owners of reporting companies created before 2024 must also file a BOI report, but they have until January 1, 2025 (but think December 31, 2024).
The BOI report is filed online at a new federal database called BOSS (an acronym for Beneficial Ownership Secure System). There is no filing fee. However, willful failure to report can result in civil or criminal penalties.
There have been reports of fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages or click on any links or scan any QR codes within them.
If you think you may be subject to the CTA reporting requirements but have questions, contact us for additional information and guidance.
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Elden Sodowsky
Sodowsky Law Firm, PC
12500 Fair Lakes Cir Ste 100
Fairfax, VA 22033
