Corporate Transparency Act – Required Federal Filings

By Logan S. Parker

The Corporate Transparency Act (the “CTA”) became law on January 1, 2021. The CTA requires all business entities to electronically file a beneficial owners information report (a “BOI Report”) with the Financial Crimes Enforcement Network (“FinCEN”), unless an exemption applies. Congress’s goal in enacting the CTA was to create a federal database to assist law enforcement in fighting terrorists, money launders, and other criminals. 

The reporting requirement became effective on January 1, 2024, following the issuance of regulations by the U.S. Department of Treasury. Unless an exemption applies, any entity formed prior to January 1, 2024 must file its BOI Report by December 31, 2024, any entity formed in the year 2024 must file its BOI Report within 90 days of the date of its formation, and any entity formed on or after January 1, 2025 must file its BOI Report within 30 days of the date of its formation. Entities also have a legal obligation to file updated BOI Reports if certain information included in the initial BOI Report changes. An updated BOI Report must be filed within 30 days after the date on which the change occurred. 

The Treasury regulations provide 23 exemptions that, if applicable, eliminate the requirement to file a BOI Report for an entity. In most instances, only 2 of the exemptions will have any application to dealers and their related entities: (i) being a “large operating company”; and (ii) being a subsidiary of an exempt entity, such as a “large operating company.” If an entity relies on an exemption to avoid filing a BOI Report, and subsequently loses that exemption, it must file a BOI Report within 30 days of losing the exemption.

To use the “large operating company” exemption the entity must meet 6 factors, which include having 20 full-time employees that are employed in the United States, having a physical presence in the United States, and having filed a federal tax return for the previous year demonstrating at least $5,000,000 in gross receipts or sales. Newly formed entities, of course, will not have filed a federal tax return for the year prior to its formation and, therefore, will not be considered a “large operating company” in most instances. To use the subsidiary exemption, the entity need only be controlled or wholly owned, directly or indirectly, by another exempt entity.

We encourage you to contact an experienced attorney if you have any questions regarding the CTA or need assistance in filing a BOI Report. The willful failure to complete a BOI Report, and the willful provision of false information, may result in civil and criminal penalties, including $500 daily fines.