Corporate Transparency Act (CTA) Part 2: Exemptions, Deadlines, and Reporting Nuances

For small business owners, the Corporate Transparency Act (CTA) might seem a bit daunting. Still, understanding its ins and outs is crucial. In Part 1, we delved deep into who must file a Beneficial Ownership Information (BOI) report and the intricacies therein. Here, in Part 2, we tackle exemptions, deadlines, changes to the information, and more. As a trusted attorney for small business, this information aims to clarify and simplify the requirements. 

1. Who Does not Need to File a BOI Report?

Out of the myriad of businesses operating in the U.S., not all are required to file a BOI report. 23 distinct categories exempt specific entities, primarily those already navigating substantial federal or state regulations. When it comes to small business owners, this is what you need to know: 

Nonprofit organizations organized under Section 501(c) of the Internal Revenue Code are exempt from the reporting requirements.

While in the eyes of the SBA, the “large operating company” is still a small business, FinCEN has created an exemption if the company meets the following requirements:

Over 20 full-time U.S. employees

A physical U.S. office (not a virtual mailbox or P.O Box)

Filed a federal return the previous year with over $5 million in gross receipts/sales

Wholly owned subsidiaries of Tax Exempt organizations or Large Operating Companies are exempt from the reporting requirements.

“Inactive Entities” which were in in existence on or before January 1, 2020  that meet the following criteria are exempt from the reporting requirements:

The company is not engaged in active business, 

The company is not directly or indirectly owned wholly or partially by a foreign person, 

The company has not experienced any change in ownership in the preceding twelve-month period

The company has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account (this includes Paypal, Vinmo, Zelle, and Cash App) in which the entity or any affiliate of the entity had an interest, in the preceding 12 month period, and 

The company does not otherwise hold any kind or type of assets or any ownership interest in any corporation, limited liability company, or other similar entity.

2. When to File the Report?

For companies formed before January 1, 2024: Initial BOI reports are due by January 1, 2025.

For entities birthed on/after January 1, 2024: A report should be filed within 30 days post-receipt of creation effectiveness notice.

This is not a yearly reporting system so you only need to file a report once, unless there are changes to the ownership or management structure.  If there is a change, you must update the report within 30 days of the change. 

3. Modification of BOI Report:

Any modifications to the information about the reporting company or its beneficial owners necessitate an updated report within 30 calendar days. Note that there’s no requirement to update company applicant data.

4. Erroneous BOI Report? Here is What to Must Do

Mistakes happen, but timely rectification is key. If inaccuracies surface post-submission, a corrected report is due within 30 days of identifying the error.

5. The Mechanism: Filing the BOI Report

Thanks to technology, the entire process is streamlined. The BOI report and all subsequent updates/corrections are filed electronically via FinCEN’s portal, without any filing fee.

6. Direct Reporting to FinCEN: Is That an Option?

Yes, beneficial owners or company applicants can acquire a FinCEN Identifier and then relay this identifier to the reporting company.

7. Confidentiality and BOI Reports

Access to BOI is restricted, ensuring the sensitive data remains in trusted hands, such as federal agencies in the national security domain, state law enforcement with a court order, financial institutions with the company’s consent, and selected foreign authorities.

8.  What happens if you do not file the BOI Report?

The penalties for failure to file the BOI Report or filing a false BOI Report is as follows:

$500 per day civil penalty

Fines up to $10,000

Up to two years in prison

Safe harbor – If you correct an innocent mistake on a filed report, within 90 days of the original filing, you are exempt from civil and criminal penalties.

Here is what you should do next:

Make a list of all entities that you have ownership interest in or have substantial control over.

Gather the necessary information for filing such as the name and address of all the owners who have 25% or more ownership in the company and any persons who manage the organization.

If you have any businesses which are no longer in operation, dissolve them with the Secretary of State.

Set up a business lawyer consultation with The Wright (law) Firm to assist you with completing the required report.