Implementation of the Corporate Transparency Act (CTA)
By Barry A. Nelson | Jennifer E. Okcular | Cassandra S. Nelson
In this letter to our clients, we discuss two important changes on the horizon. The implementation of the Corporate Transparency Act (“CTA”), which will impose significant new reporting requirements on many businesses, and the sunsetting of the increased estate and gift tax exemption amounts at the end of 2025. These changes may affect many of our clients and we want to make sure you are aware of the filing requirements and deadlines. Action may be required before the end of 2024 to lessen or delay the impact of the CTA should it apply to you.
After reading this letter, visit our BOI Filing page for deadlines and more information about e-filing your Beneficial Ownership Information report. FILING YOUR BOI
Dear Client:
We are writing to inform you about two important changes on the horizon. The first is the implementation of the Corporate Transparency Act (“CTA”), which will impose significant new reporting requirements on many businesses. Second is the sunsetting of the increased estate and gift tax exemption amounts at the end of 2025. While the primary focus of our firm is estate planning, the CTA filing requirements affect many clients, and we wanted to be proactive to make sure you are aware of the filing requirements described below. The bulk of this letter concerns the CTA, due to its broad reach and the potential for significant civil and criminal penalties. Action may be required before the end of 2024 to lessen or delay the impact of the CTA should it apply to you.
It is important to note, however, that on March 1, 2024, an Alabama federal judge struck down the CTA as unconstitutional (National Small Business United d/b/a National Small Business Association v. Yellen, Case No. 5:22-cv-1448-LCB (3/1/2024)). At the time of this letter, it is unclear whether the US government will appeal the ruling and what the ongoing obligations under the CTA are. We will continue to monitor CTA developments. In the meantime, we provide information regarding the CTA, including the filing requirements and penalties and suggest that you consult with your business attorneys to make sure you will comply with the CTA if it remains in effect.
I. CTA
General Application of the CTA: On January 1, 2021, Congress passed the CTA as 31 U.S. Code §5336 which is part of the Anti-Money Laundering Act of 2020. It is intended to assist in uncovering bad actors seeking to conceal ownership of corporations, LLCs and other similar entities in the United States that could be used to facilitate money laundering, financing terrorism, tax fraud and other illegal acts by requiring Beneficial Ownership Information Reporting (“BOI Report”) with the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”). On November 29, 2023, FinCEN issued a final regulation under the CTA. Reporting Companies created or registered during the 2024 calendar year must file a BOI Report within 90 calendar days from the date of their formation. Reporting Companies created or registered on or after January 1, 2025, must file a BOI Report within 30 days from the date of their formation.
A “Reporting Company” is any corporation, limited liability company, or other similar entity that is (i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe. A list of certain exclusions to a Reporting Company are listed on Schedule A. Since the exclusions do not generally apply to our clients, you should consider that all newly created entities will be considered as a Reporting Company and have an obligation to file a BOI Report soon after formation.
For any Reporting Company created or registered prior to January 1, 2024, a BOI Report must be filed no later than January 1, 2025 unless Congress extends the deadlines as described in the following paragraph.
On December 12, 2023, the House of Representatives (the “House”) passed a Bill (HR 5119) extending the CTA deadlines. If the Bill, as it is, is passed by the Senate and the President, the following changes will be made to the CTA:
The initial BOI filing deadline for entities created before 2024 would be extended to January 1, 2026 (rather than January 1, 2025).
All companies formed after January 1, 2024, would have 90 days to file their BOI Reports.
The deadlines for any updates to the report would be extended to 90 days. This extension would not apply to corrections to the report, only changes from updates.
The BOI Report Requirements would be amended to clarify that Reporting Companies are not allowed to submit a report describing how the company is unable to obtain identifying information, i.e., driver’s licenses and passports. This provision appears to prohibit FinCEN from excusing entities if they cannot obtain the necessary information to comply with the BOI Report requirements.
Note: The Bill has been received by the Senate, read twice, and referred to the Committee on Banking, Housing, and Urban Affairs.
Beneficial Ownership Information Report (BOI Report): The Reporting Company is required to file the BOI Report online with FinCEN. E-filing is available at the FinCEN website. (See Beneficial Ownership Information FAQs.) It will collect the information set forth on Schedule B. The reporting information includes the Company Applicant of the Reporting Company. A Company Applicant is the individual who:
directly files the document that creates the Reporting Company, or in the case of a foreign Reporting Company, the document that first registers the entity to do business in the United States; or
is primarily responsible for directing or controlling the filing of the relevant document by another party (this may cause lawyers and accountants providing advisory services to qualify as a Company Applicant).
The reporting of a Company Applicant only applies to a Reporting Company created after December 31, 2023. However, for a Reporting Company created prior to January 1, 2024, a lawyer or accountant providing advisory services to such entity could qualify as a person providing substantial control requiring such person to be included on the BOI Report.
Pursuant to regulations published by FinCEN, “substantial control” may consist of directing, determining, or having substantial influence over important decisions made by the Reporting Company. The Small Entity Compliance Guide published by FinCEN in September 2023, provides that a person with substantial control is any person with substantial influence over important decisions made by the Reporting Company including the structure of the Reporting Company or making any amendment to the governing documents of the Reporting Company (i.e., Articles of Incorporation, Articles of Organization, bylaws and/or shareholder or operating agreements).
Because the CTA is purposefully worded to apply broadly, we have a concern that serving as a registered agent for a Reporting Company with an obligation to accept service of process and provide such service of process to our clients could be considered substantial control as to a Reporting Company.
For more information on this view this article in our web site.
For CTA requirement filing services visit our BOI Filing page.
In connection with providing legal advice and services to clients, please note that Nelson & Nelson, P.A. and its employees do not have substantial influence with respect thereto as such decisions are ultimately made by the client.
Updated BOI Reports: If any information on the initial BOI Report changes (e.g., a 25% beneficial owner relocates his residence or changes his or her name due to a marriage or divorce), an updated BOI Report must be filed within 30 days of such change.
Beneficial Owners: Any individual, who directly or indirectly, (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. In the BOI report, FinCEN requires the owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport). The purpose of collecting this sensitive data is to enable authorized recipients, such as law enforcement and regulators, the ability to combat criminal activity such as money laundering and the financing of terrorism.
FinCEN Identifier: To the extent that you are an investor or involved with multiple Reporting Companies, FinCEN will be issuing a FinCEN Identifier so that such person can provide such FinCEN Identifier in lieu of providing personal details (e.g., driver's license or passport) to a third party for a Reporting Company.
Penalties for Noncompliance: Any person who willfully fails to report complete or updated information pursuant to the BOI Report or willfully provides or attempts to provide false or fraudulent information is subject to civil and criminal penalties of up to $500 per day for the period that such violation continues or has not been remedied with fines of up to $10,000 and imprisonment of up to 2 years.
Compliance with CTA: For Reporting Companies created after December 31, 2023, the Reporting Company will have to timely file a BOI Report and update such BOI Report if the information contained on the prior filed report changes. For Reporting Companies created prior to January 1, 2024, the initial BOI Report must be filed by January 1, 2025, and must be updated to the extent that the information contained on the prior filed report changes. Nelson & Nelson, P.A. will not be providing CTA compliance services. You should be collecting information to allow for the filing of an initial BOI Report for any Reporting Company. Alternatively, you could contact third-party service providers who provide CTA compliance services, and such providers could include your accounting firm. If Nelson & Nelson, P.A. or its employees currently serve as a registered agent or are listed as a principal address, you should select a new registered agent and revise the principal address on the 2024 Annual Report for a Reporting Company. Nelson & Nelson, P.A. will be filing resignations as Registered Agent.
After reading this letter, visit our BOI Filing page for deadlines and more information about e-filing your Beneficial Ownership Information report. FILING YOUR BOI
II. Reduction in Current High Estate Tax Exemption on January 1, 2026
As you may be aware, the current estate and gift tax exemption (in 2024, $13,610,000 per person or $27,220,000 for a married couple reduced by prior taxable gifts) is scheduled to decrease on January 1, 2026, to about $7 million per person or $14 million for a married couple. There are a significant planning opportunities to use the current exemption amount before January 1, 2026 and avoid paying an estate or gift tax of 40% on the transfer. This planning opportunity will no longer be available after 2025 (unless Congress acts to change the law). It is possible to create trusts that will ultimately benefit your chosen beneficiaries in a manner that is tax efficient and protected from future creditors, including a divorcing spouse, and allow some flexibility should access to the funds be needed at a future date. We expect our office may be unable to satisfy demand for our services especially for clients who wait until 2025 to begin this planning as we get closer to 2026. If you have any interest in using your current high estate and gift tax exemption amount, we urge you to contact us at your earliest convenience. We suggest that clients start the planning process early even if the trusts we create remain unfunded until the current law is extended or it becomes clear that the larger exemptions will terminate.
Schedule A
List of Excluded Entities to the Definition of a Reporting Company
There are certain exclusions to a Reporting Company which include the following:
A large operating entity that has (a) an operating presence at a physical office within the U.S., (b) over 20 full-time employees in the U.S., and (c) filed in the previous year Federal income tax returns in the U.S. demonstrating more than $5 million in gross receipts or sales;
An inactive entity that (a) has been in existence for over 1 year that (b) is not engaged in any active trade or business, (c) is not owned, directly or in directly, by a foreign person, (d) has not, in the preceding 12-month period, experienced a change in ownership or sent or received funds in an amount greater than $1,000 (including all funds sent to or received from any source through a financial account or accounts in which the entity, or an affiliate of the entity, maintains an interest), and (e) does not otherwise hold any kind or type of assets, including an ownership interest in any corporation, limited liability company, or other similar entity;
A publicly registered company that is (a) an issuer of publicly registered securities or (b) required to file public reporting information pursuant to the Securities Exchange Act of 1934;
A registered regulated entity including any bank, bank holding company, credit union, investment adviser, investment company, or broker dealer that has either registered with the Federal Deposit Insurance Act, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the Federal Credit Union Act (or similar state law), the Bank Holding Company Act of 1956, or the Securities Exchange Act of 1934;
A public accounting firm registered in accordance with Section 102 of the Sarbanes Oxley Act of 2002;
A public utility;
A tax-exempt entity pursuant to Section 501(c) of the Internal Revenue Code of 1986, as amended (the “Code”);
A political organization pursuant to Code Section 527;
A charitable trust or split-interest trust pursuant to Code Section 4947; or
Any U.S. governmental organization.
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Schedule B
Information to be Provided on the BOI Report
Full legal name and trade name of the Reporting Company;
The complete physical address of the Reporting Company including the street address of the principal place of business (listing a P.O. box or an attorney’s address is not allowed);
State of formation of the Reporting Company;
The EIN of the Reporting Company;
The full legal name, current residential address, date of birth and government identification (either an active U.S. driver’s license or passport) of each person who directly or indirectly owns or controls at least 25% of the equity of the Reporting Company, together with a copy of the U.S. driver’s license or passport;
The full legal name, current residential address, date of birth and government identification (either an active U.S. driver’s license or passport) of each person who directly or indirectly substantially controls the Reporting Company (this includes any senior officer, manager or director), together with a copy of the U.S. driver’s license or passport; and
The full legal name, current residential address, date of birth and government identification (either an active U.S. driver’s license or passport) of the Company Applicant of the Reporting Company, together with a copy of the U.S. driver’s license or passport.
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Disclaimer: This information has been prepared for educational purposes only and is not offered, nor should be construed, as legal advice. Use of this information without careful analysis and review by your attorney, CPA, and/or financial advisor may cause serious adverse consequences. We provide absolutely no warranty or representation of any kind, whether express or implied, concerning the appropriateness or legal sufficiency of this information as to any individual’s tax and related planning.
