If you’re a New York small business owner or own investment property, you likely have new reporting requirements for 2024 under the Corporate Transparency Act (“CTA”). By its name, you might think the CTA imposes transparency requirements on large corporations. Unfortunately, this new law hits small business owners and real estate investors most harshly, imposing burdensome reporting obligations under the threat of harsh penalties.
The CTA likely applies to you to if:
- You own real estate or other assets through an LLC or other business entity.
- You own a small business.
In addition, even if you are not the majority owner, if you have a significant interest in a small business or investment entity, you may be required to provide personal identifying information to the owner or manager of the entity so that they can include it in their reporting.
Read on for an introduction to the CTA and what you need to know to comply and avoid penalties.
Does the Corporate Transparency Act (CTA) Apply to Me?
The CTA applies generally to all “Reporting Companies,” defined as any entity formed under state law or foreign company registered to do business in the U.S. that does not fall into a specific exemption.
The law exempts twenty-three types of entities, including “Large Operating Companies,” tax-exempt entities, and other entities that are otherwise heavily regulated, such as banks and credit unions. Large Operating Companies are businesses that have more than 20 full time employees and more than $5 million in annual gross revenue.
What Do I Have to Report?
Reporting Companies must submit a Beneficial Ownership Information Report (BOIR) that includes certain identifying information about the entity itself, as well as the Beneficial Owners and Company Applicants of the entity.
- A Reporting Company must disclose its:
- Full legal name
- Any “doing business as” names
- A complete current business address
- The State, Tribal, or foreign jurisdiction of formation
- For a foreign reporting company, the State or Tribal jurisdiction where such company first registers
- The TIN of the reporting company or foreign equivalent if a foreign reporting company has not been issued a TIN by the IRS
Information for Beneficial Owners and Company Applicants
Reporting Companies must report certain information for all Beneficial Owners. Reporting Companies formed on or after January 1, 2024 must also provide such information for each Company Applicant (up to two individuals).
The following information must be reported for each Beneficial Owner and Company Applicant (where applicable):
- Full legal name
- Date of birth
- Current address
- Identification document number (e.g., driver’s license or passport number)
In addition to reporting the information listed above, Reporting Companies must also provide copies of identifying documents to support the information they’ve provided. In the alternative, beneficial owners and Company Applicants may report this information and provide documentation themselves.
Beneficial Owner Definition
The CTA defines a Beneficial Owner as:
- Any individual who directly or indirectly exercises substantial control over a Reporting Company or
- Any individual who owns 25% or more of the entity.
Substantial Control Test
Any individual who exercises substantial control over a Reporting Company’s operations or decisions is a Beneficial Owner. While there is no exhaustive list of Individuals who may have substantial control, examples include senior officers, individuals with the power to remove a senior officer, and individuals with substantial influence over decision making. In some instances, real estate property managers may be considered individuals with substantial control.
An individual who owns 25% or more of a Reporting Company in the form of equity, profit sharing agreements, voting rights, convertible debt, or other legal interest. Such ownership can be direct or indirect.
Company Applicant Definition
A Company Applicant is an individual who directly filed or was primarily responsible for filing documents to form the entity, such as the company owner, lawyers, paralegals, or state filing service providers.
There are two categories of Company Applicants. The first category is the direct filer – i.e., the person who physically or electronically files the documents creating or registering the entity with the state. All Reporting Companies must report a direct filer. The second category is a person who directs or controls the filing of the documents creating or registering the entity. Not all Reporting Companies will have a Company Applicant that falls into the second category.
When Do I Need to File?
CTA filing deadlines vary depending on the date the entity was formed. Entities formed prior to January 1, 2024, must file their initial reports before January 1, 2025. These entities will not need to report information on Company Applicants. Entities formed from January 1, 2024, through December 31, 2024, will have 90 days from the date they are registered with the state to file their reports. Entities formed on or after January 1, 2025, will have 30 days to file their reports.
After filing an initial report, entities will not need to refile forms unless there is a change in beneficial ownership, there is a change to BOI (including address changes), or there were errors on the initial report. Reporting entities will have 30 days to report any errors or changes, starting from the date the change occurs.
How Do I File?
You can file a Beneficial Ownership Information Report (BOIR) on the FINCEN website at https://www.fincen.gov/boi.
Individuals and companies can also apply for a FINCEN identifier at the same website. A FINCEN identifier can be provided in lieu of identifying information for a Beneficial Owner or Company Applicant in multiple BOIRs. FINCEN identifiers have the same requirements to report changes to information as Reporting Companies.
Who Will Have Access to This Information?
FinCEN will disclose information provided pursuant to the Corporate Transparency Act only to governmental investigatory agencies; the general public will not have access to this information. Strict rules apply to governmental agencies’ access to and use of CTA data. Violating these rules may result in civil or even criminal penalties.
What Happens If I Don’t Comply with the Reporting Requirements?
Willfully failing to report BOI or report accurate BOI may result in civil penalties up to $500 for each day the violation continues. Willful violators may also face criminal penalties up to $10,000 and 2 years in prison. Likewise, agency representatives who knowingly disclose or misuse BOI may face civil penalties of up to $500 a day and criminal penalties of up to $250,000 and 5 years in prison. If the agency representative engaged in a pattern of violative behavior, criminal penalties could be as high as $500,000 and 10 years in prison.
The nuances of the CTA are quite cumbersome. We are here to help you understand how the CTA applies to your specific situation.
Where Can I Learn More?
For more detailed information on the CTA and its reporting requirements, visit the FINCEN website at https://www.fincen.gov/boi.
You can also reach out to The Village Law Firm with any questions or help with complying with the CTA.
Next Steps: Review Your Business Entity and Consult with a New York Estate Planning Attorney
The new BOI reporting requirements for 2024 necessitate a review of your business entity’s status to understand your reporting requirements for the Corporate Transparency Act. Even if you are not the owner, you may still be subject to the reporting requirements based on your status in the business. It’s essential to begin now to assemble a list of every privately held entity that you hold an interest in or even exert control over. Obtain a copy of the certificate filed with the state where the entity was formed and any other business ownership information. Then, consult with trusted estate lawyer Shannon P. McNulty to help you navigate the new reporting requirements for businesses. If you are a business owner, schedule a call with The Village Law Firm to learn if your entity is seen as a Reporting Company under the CTA and how to remain compliant with the law.