In 2021 the U.S. Congress passed the Corporate Transparency Act (CTA), which is aimed at preventing money laundering and as a counterterrorism measure. Under this act, reporting companies are required to report all beneficial owners to the Financial Crimes Enforcement Network(FinCEN). This act will impact most companies, partnerships and LLC’s who have business in the United States.

Reporting Companies

There are two types of “Reporting Companies” which must file a Beneficial Ownership Information Report to FinCEN:

• “Domestic reporting company” - Any entity that is a corporation, limited liability company, or created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
  
  - Note that this definition would include most corporations, LLP’s and Limited Partnerships, in addition to the directly referenced LLC’s and Corporations, since these entities are typically created by a filing in most states.

• “Foreign reporting company” - Any entity that is a corporation, limited liability company, or other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
  
  - State for this purpose includes, “any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of Northern Marina Islands, American Samoa, Guam, the United States Virgin Islands, and any other commonwealth, territory, or possession of the United States”.

There are 23 exclusions from being a Reporting Company including:

• Publicly traded companies who are registered with the U.S. Securities and Exchange Commission (Please note that Canadian registered publicly traded companies are not exempt under this exception)
• Brokers /dealers in securities
• Securities exchange or clearing agencies
• Other Exchange Act registered entities
• Venture capital fund advisers
• Large operating companies in USA:
  - More than 20 full-time employees, and
  - More than 5M in U.S. gross receipts reported to IRS in prior year, and
  - A physical U.S. office

• Subsidiaries of certain exempt entities
• Inactive entities (must not be owned by a foreign person in any way, in addition to other requirements)

A full list of the 23 excluded entities can be found at https://www.fincen.gov/boi

It is important to note that this legislation does not differentiate between a tax filing entity or a disregarded entity. All entities falling into the above definition which aren’t excluded are reporting companies and are required to file separate reports with FinCEN, even if they are not required to file a tax return.

Beneficial Ownership

The CTA defines a “beneficial owner” as any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

1. exercises substantial control over the entity; or
2. owns or controls not less than 25 percent of the ownership interests of the entity.

The definition of substantial control and of ownership interest are very broad. For example, the finalized regulations list senior officers (such as CFO, CEO), board members or anyone who has substantial influence over important decisions as exercising substantial control.

Based on the breadth of the substantial control definition, FinCEN expects that a reporting company would identify at least one beneficial owner under the substantial control prong, regardless of whether that individual also satisfies the “ownership” test. Most companies will be required to report more than one beneficial owner.

Reporting companies must file a Beneficial Ownership Information Report (BOI Report) containing the names, date of birth, address, and a unique identification number such as a passport number of all beneficial owners described above.

Reporting Timelines

For all entities in existence before January 1, 2024, the initial report must be filed before the end of 2024. Companies which come into existence in 2024 had 90 days to file their initial reports, while companies formed in 2025 and beyond have 30 days to file their initial report.

Once the initial report is filed, companies have 30 days to report any update to their beneficial owners, such as a sale of the business, change in ownership structure, appointment anyone meeting the definition of having substantial control or if previously reported information is determined to be outdated. This would include when a passport which was used as the unique identification number is renewed and a new number has been granted.

Penalties for non-compliance are severe. The act allows for civil penalties of $500 per day a report is not filed, up to a $10,000 penalty and for willful non-compliance levied directly on both the company and the owners/senior officers personally. The act also includes provisions for up to 2 years imprisonment for the owners in addition to the potential fines.

Additional information can be found directly on the FinCEN website at:

https://www.fincen.gov/boi

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We are here to assist you in any way to better understand the requirements of the Corporate Transparency Act, or with initial and ongoing BOI Report filings. If you have any questions, please contact:

Terence Wong, CPA, CA, CPA (Illinois)‍

780.420.4761
twong@krpgroup.com

Kevin Shumard, CD, MPAcc‍

780.424.3000 ext. 707
kshumard@krpgroup.com
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Information provided is of a general nature and deals with time sensitive information that could change. Information may not apply to your particular facts and circumstances and should not be relied upon in lieu of seeking advice from your professional advisors. Neither KRP nor its partners, directors, contractors or employees will be liable for any actions taken from reliance on this information. Links to other websites or publications are provided for your convenience only and you may access them at your own risk. By supplying this information, KRP is not providing tax, accounting, legal, or professional service or advice.