Beneficial Ownership Information Reporting

A piece of federal legislation called the Corporate Transparency Act (CTA) went into effect on January 1, 2024. This law is intended to prevent illegal activity such as tax fraud, money laundering, and other financial crimes.

The CTA aims to achieve these goals by requiring business owners to file beneficial ownership interest (BOI) reports. If you don’t consider yourself a business owner, you may not think that this new law has anything to do with you. But if your estate assets include an interest in a business, you should understand the requirements of the Corporate Transparency Act and how it applies to you.

There have been some legal challenges to the CTA, but for the moment, it’s best to know the rules and follow them.

Corporate Transparency Act Reporting Requirements

One of the primary provisions of the CTA is its requirement that businesses report beneficial ownership information to the federal Financial Crimes Enforcement Network, also known as FinCEN. But what is a “beneficial owner?”

Under the CTA, a person is considered a beneficial owner of a business if they directly or indirectly exercise substantial control over a company, or own at least 25% of a corporate entity. Information that must be reported includes:

• Full legal name, date of birth, and addresses of the company’s beneficial owner or owners
• Personal identifying information such as driver’s license number or passport number of the company’s beneficial owner or owners
• Details regarding the business, including its name, taxpayer identification number, and address.

There are certain types of entities that are exempt from BOI reporting requirements, including public utilities, companies listed on a U.S. stock exchange, banks, and registered broker-dealers, among others.

How Can Estate Planning Make Me Subject to the CTA?

Trusts that own businesses or business interests may be within the scope of the Corporate Transparency Act, and there are a number of other scenarios which could require you to file BOI reports, such as:

• You own stock in a family business
• You inherited stocks from someone who was subject to the reporting requirement
• You own or have an ownership interest in a limited liability company (LLC)
• Your estate plan includes a trust that owns an interest in a business that is subject to the reporting requirement of the CTA
• You are the trustee of a such a trust, or the beneficiary of such a trust
• You are authorized to allocate the assets of a trust that is subject to the CTA’s reporting requirements

If your estate plan means that you are subject to the CTA’s reporting requirements, you should understand that the law may affect the privacy and management of certain trusts.

When Must Beneficial Ownership Information Be Reported?

Reporting requirements depend on when a reporting company was created. Those companies created prior to January 1, 2024 are required to report beneficial ownership information no later than January 1, 2025. For reporting companies created on January 1, 2024 or thereafter, beneficial ownership information must be reported to FinCEN within 30 days after the company registers as a business entity.

What Happens if a Reporting Company Fails to Report?

There’s an old saying: “It’s easier to get forgiveness than permission.” This saying does NOT apply to dealings with the federal government. If you are obligated to report BOI and you fail to do so in a timely fashion, you could be subject to both civil and criminal penalties. While intentional noncompliance with the CTA is more serious than inadvertent failure to comply, you should take all possible measures to ensure that you are following the law.

If you willfully fail to report BOI, or to update an existing report when required, you may be subject to civil financial penalties of up to $500 per day, up to a maximum of $10,000 in fines per violation. A violation of the CTA’s reporting requirements may also carry a criminal penalty of up to two years’ imprisonment.

Are the CTA’s Reporting Requirements Legal?

The National Small Business Association (NSBA) and one of its individual members, Isaac Winkles, filed a lawsuit to challenge the constitutionality of the Corporate Transparency Act. On March 1, 2024, the U.S. District Court for the Northern District of Alabama found that the CTA is unconstitutional because it exceeds Congress’s enumerated powers. The court did not rule on the plaintiffs’ allegations that the CTA violated the First, Fourth, Fifth, Ninth, and Tenth Amendments to the U.S. Constitution.

The court did issue an injunction preventing the law from being enforced against the plaintiffs in the case, but the injunction does not extend any further. FinCEN has stated that it will comply with the court’s injunction while litigation continues, but will continue to implement the CTA with reporting companies other than the plaintiffs’. In other words, individuals and companies that would be subject to the law’s reporting requirements should continue to follow them.

How Do I Make Sure I’m Complying with BOI Reporting?

The Corporate Transparency Act is a complicated piece of legislation, and it’s important to have an attorney’s help interpreting and applying the law. If you think you may be subject to the beneficial ownership information reporting requirements of the Corporate Transparency Act, contact your estate planning or business law attorney to see what you need to do, and if a restructuring of your estate plan may be called for.

To learn more about the CTA or to ensure you are in compliance, contact the Law Offices of Dana M. Kyle to schedule a consultation.