If the title for this blog does not get you to be curious about reading the blog, it should!

On January 1, 2021, Congress passed the Corporate Transparency Act. On September 29, 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Final Rule regarding the beneficial ownership reporting requirements under the Corporate Transparency Act (CTA).

The ability of a federal agency to pass rules and regulations is a hot topic in Washington these days, as government bureaucrats basically get to write the laws (rules and regulations) that our elected officials have delegated their authority to.

The Corporate Transparency Act (“CTA”) on its face sounds reasonable, but as Snow White learned in her fairy tale….a beautiful apple can be full of poison.

Of most importance for our business clients is that the CTA requires that one has beneficial ownership in an entity to report their personal information to the Internal Revenue Service (IRS). Yup, the same IRS that presumes that you have done something wrong, and you must prove otherwise.

The idea behind this collection of beneficial ownership information began internationally. In 1989, the G7 Summit established the Financial Action Task Force (FATF) due to growing concerns about money laundering internationally.

The CTA requires thousands of law-abiding Michiganders to provide a federal law enforcement agency with their names, addresses, and passport or driver’s license information with the purpose to identify all the organizations that the persons exercise “substantial control” over. This information is called Beneficial Ownership Information (“BOI”).

A beneficial owner is any individual who, directly or indirectly, either (1) exercises substantial control over the reporting company or (2) owns or controls 25 percent or more of the ownership interests of the reporting company.

The CTA defines a reporting company as a “corporation, limited liability company, or other similar entity” that is created by filing with a secretary of state under the law of a state or is formed under the laws of a foreign country and registered to do business in the United States.

To be fair, the Final Rule form FinCEN exempts operating entities that have at least 20 full-time employees in the United States, more than $5 million in gross revenues, and have a physical location in the United States. Even with the exemptions, an overwhelming majority of all entities in existence will constitute reporting companies with reporting obligations. Obviously “small businesses” are most affected by this.

Changes of reporting company information, including changes in exemption status or beneficial ownership, must be reported to FinCEN within 30 days of the change. However, corrections to reported information must be filed within 14 calendar days after the date that the reporting company becomes aware or has reason to know that any required information contained in any report filed with FinCEN was and remains inaccurate.

The business community has been so upset about this that the Small Business Association of Michigan has filed a lawsuit against FinCEN. The SBAM has taken the position that the law is unconstitutionally vague and imposes criminal penalties.

So, what does one do in the meantime. Well, until the law is thrown out by the court system, or a new President is elected who gets rid of the rules or regulations, small business owners are going to have to comply. For further information you should contact your accountant or examine information on the website for FinCEN at www.fincen.gov/boi-faqs .

If you are on a board of an entity that does not fit into one of the exceptions under CTA’s rules and regulations, you need to consider action before the end of 2024 if the entity was set up prior to January 1, 2024.

As specified in the CTA, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation. As of the time of publication of this, the amount is $591 each day.

A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.

If you formed a business after January 1, 2024, you have 90 days to file the establishment of the business, and all other businesses where CTA is applicable have until December 31, 2024 to file.