What physicians need to know about the Corporate Transparency Act

Syed Nishat: ©Wall Street Alliance Group

Among the various filings that businesses must plan before the end of 2024, there is a new filing that most entities in the US must now add to that list. The Corporate Transparency Act, part of the National Defense Authorization Act of 2021, requires disclosure of all beneficial owners of entities, with harsh penalties for those businesses who ignore this requirement.

What is the background of the CTA?

The Corporate Transparency Act (CTA) was introduced in an effort to increase transparency around ownership of entities, such as corporations and LLCs. This big shift is looking to significantly reduce illegal activities through shady finances, such as money laundering and terrorism financing, by creating a federal dataset of ownership for entities that law enforcement can access to aid them in investigations. The CTA requires reporting to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), with full disclosure of all “beneficial owners.” Since its introduction in 2021, there have been several federal cases challenging the act, however, without any bold developments in those, the implementation of the act is in full swing.

Who must file?

All non-exempt domestic entities must report, including all LLCs, corporations, and other entities created by filing with a secretary of state or similar office under the law of a state or Indian tribe. Foreign entities doing business in the US must also file. There are some exemptions, including regulated entities such as banks, large companies with more than 20 full-time employees and $5 million in gross revenue, and inactive entities.

When should an entity file?

New entities created after 1/1/2025 will be required to file their beneficial ownership information within 30 days of formation. For existing entities created after 1/1/2024 but before 1/1/2025, reporting is required within 90 days of formation. For all other existing entities, the deadline is January 1, 2025, or if they’ve received notification from FinCEN, within one year of that notification. These filings are not annual, however, any changes to beneficial ownership changes must be reported within 30 days of the change.

What information should be reported for beneficial owners?

Requirements for reporting include identifying information for the business itself, but more importantly, detailed information about the business’s beneficial owners. Under CTA, a beneficial owner is an individual who owns 25% or more of the entity or has substantial control over its operations, directly or indirectly. The mandatory information includes the name, date of birth, address, and a unique ID number (which could be listed on a driver’s license or passport, etc.) for each beneficial owner. The report must also include an image of a valid identification for each owner as well.

What is the impact on a business?

As with any federal requirement, it is vital to remain in compliance with CTA. Rather than waiting for a notification from FinCEN, it is better to be proactive and prepared to make your filing before the deadline. This entails an internal process of gathering the necessary information and ensuring the reporting is done on time, as well as continued monitoring for changes that may require updated filings. This also means identifying areas of concern about business structure that could complicate the filing. Non-compliance can have serious consequences, including large fines and legal liabilities to the business.

What are the penalties for non-compliance?

There are both civil and criminal penalties that could result from non-compliance with CTA’s requirements. Civil penalties can be up to $591 per day for failure to report. Criminal penalties may include fines up to $10,000 and 2 years of imprisonment for failure to file or knowingly reporting false information.

How should a business approach compliance?

First, identify the business’s beneficial owners by conducting a review of the ownership structure to determine who falls under this category. Review agreements and other documentation for ownership percentages and operations.

Next, gather the required data from each beneficial owner, including a copy of their ID.

Third, prepare the filing to get the information over to FinCEN. Create a process to ensure this is done in a timely manner, and that the process includes monitoring for any changes that will need reporting in future.

Last, implement the process for monitoring changes in ownership/ control to make sure they are reported to avoid penalties.

Who counts as a beneficial owner?

While there are many qualifications and intricacies, the basic qualification for a “beneficial owner” is any person who owns or controls 25% or more of a business or who has, directly or indirectly, a large amount of control over the company. This includes owners, senior officers, or those who have a measure of authority over senior offers or members of the board.

Exemptions to the ownership rule include minor children (if their parent/ legal guardian is reported as beneficial owner), employees other than senior officers, future inheritors, and creditors. If ownership interest is through an exempt entity exclusively, then the names of all exempt entities can be reported instead of the individual owner themselves.

How does trust ownership affect beneficial owners?

If an individual owns or controls a non-exempt entity through a trust, they may also be considered beneficial owners for reporting purposes. They would do this by either owning or controlling the property that is held in a trust or by having substantial control over the company via a trust agreement. If the reporting company is owned or controlled by a trust, an individual who is a sole recipient of income/ principal from the trust, is a grantor/ settlor who can revoke the trust, or who has the authority to dispose of trust assets is considered a beneficial owner.

To whom is beneficial ownership data available?

The data reported to FinCEN is completely confidential and may not be disclosed, unless authorized by FinCEN to be shared upon request from federal agencies involved in items related to national security, intelligence, or law enforcement or requests from state, local, or tribal law seeking information for a criminal or civil investigation.

Where can entities file?

Filing beneficial owner information can be done online via the FinCEN website. Go to https://boiefiling.fincen.gov/. Before filing, have the required information gathered as well as clear scans of all required IDs. The filing can be done completely online, though there is also the option of completing a PDF version of the form as well.

What Other Resources are Available?

FinCEN has provided multiple resources, including:

How to File Demo- https://www.youtube.com/watch?v=GydCvfbKxPw

Filing Instructions: https://boiefiling.fincen.gov/resources/BOIR_Filing_Instructions.pdf

FinCen Intro Brochure on Beneficial Ownership Reporting - https://www.fincen.gov/boi/quick-reference

FinCen Small Entity Compliance Guide - https://www.fincen.gov/boi/small-entity-compliance-guide

Conclusion

There is no denying that the CTA provides a new type and level of oversight for US companies, requiring compliance with the aim of creating a federal database to aid law enforcement reduce financial crimes such as funding terrorism. While the new CTA reporting requirements place a burden on non-exempt businesses to gather, monitor, and submit beneficial ownership information to FinCEN, compliance is vital to avoid harsh penalties and to remain in good standing.

Syed Nishat is a CERTIFIED FINANCIAL PLANNER® anda partner at Wall Street Alliance Group. Syed has been regularly quoted in Medical Economics, Medscape, KevinMD, MedPage Today & Forbes. He can be reached on LinkedIn and on Twitter @syedmnishat.

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