House Passes Bill That May Delay BOI Reports for Some

Posted on December 19, 2023December 9, 2024 by Johnna Wahrman

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On December 12, 2023, the U.S. House of Representatives passed a bill that might delay some initial Beneficial Ownership Information (BOI) reports required under the Corporate Transparency Act (CTA). The bipartisan bill introduced by Rep. Zachary Nunn (R-IA) is called the “Protect Small Business and Prevent Illicit Financial Activity Act”. The House voted 420-1 to amend the standing BOI rule to adjust certain deadlines. Although the final rule remained essentially unchanged for almost three years, as the initial implementation date of January 1, 2024 comes near, commenters are uneasy about the effect this new law will have on small businesses and have been pushing for change.

Proposed Changes

The proposed changes to the current rule would be as follows:

Entities established before January 1, 2024, now have until December 31, 2025 to file their initial BOI reports, rather than December 31, 2024 as the final rule currently stands. In other words, the existing entities as of January 1, 2024 would have two full years to comply, instead of one as the law currently stands.
For entities established on or after January 1, 2025, the initial filing deadline is extended to 90 days following their formation – the current rules have a 30 day deadline.
All reporting companies will have 90 days to file any updates to their BOI reports if previously reported information has changed. The current rules have a 30 day deadline.

What Hasn’t Changed

There are a few aspects of the rule would remain standing even if this new bill ultimately becomes law:

Entities established on or after January 1, 2024, and before January 1, 2025 have 90 days to file their initial BOI report. This timeframe is unchanged from an amendment to the final rule from November 29, 2023.
Corrected reports must be filed within 30 days of when the company becomes aware, or should have become aware, of any erroneous information previously reported.

It’s important to realize that the Senate and POTUS still need to vote on this bill for the amendments to be final.

It was a landslide vote in the House, but it doesn’t necessarily mean the same will happen when the Senate votes, or that the Senate will even take the matter up. The Senate was scheduled to recess Dec. 15, 2023, for the holidays, but the break was pushed back a week to address an array of other pressing topics. It was a landslide vote in the The Corporate Transparency Act is still current law, so it’s still very important to be ready for 2024 reporting requirements and deadlines as they currently stand. Under current rules, reporting companies established in 2024 will have 90 days to file their initial BOI reports and existing companies need to prepare by December 31, 2024, to report their information to FinCEN. Stay tuned this week for updates! See the bill here: Text – H.R.5119 – 118th Congress (2023-2024): Protect Small Business and Prevent Illicit Financial Activity Act | Congress.gov | Library of Congress

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CTA Impact on Banks and Financial Institutions

Posted on December 19, 2023December 9, 2024 by Johnna Wahrman

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What Is the CTA Impact on Banks and Financial Institutions?

The Corporate Transparency Act (CTA) goal includes changing the way financial institutions operate, creating a new era of transparency and due diligence. This federal statute, passed as part of the Anti-Money-Laundering Act of 2020, will require most privately held U.S. companies to report the names of their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department. This new reporting requirement complements the existing obligations under FinCEN’s Customer Due Diligence Rule and presents several significant implications for banks and other financial institutions.

Enhanced Organizational Due Diligence

Beginning on January 1, 2024, new entities will have a 30-day window (a 90-day extension in 2024) to file a beneficial ownership information report (BOIR) to FinCEN. Existing entities, unless exempt, must file a BOIR by January 1, 2025. For financial institutions, the BOIR will serve as a valuable tool. Lenders will cross-check this information with operating agreements and resolutions to ensure accuracy before closing transactions.

Permissions and Requests

Financial institutions must obtain permission to access the BOIR. Including this permission in a bank’s commitment letter can streamline the process, reducing the need for separate requests. This permission should cover both the borrowing entity and any upstream entities associated with the borrower.

Impact on Opinion Letters

The BOIR’s provision of verified information about borrowers may make certain opinion letters, especially authorization opinions, less necessary, reducing paperwork and complexity.

Reps, Warranties, and Covenants

If a company that didn’t have to report its ownership info before now has to, or if anything changes within the ownership of the company, they should inform their lender ASAP and must report it to the government within 30 days (an extension to 90-days was granted for 2024). The company also must promise that the information they gave before getting the loan is accurate and complete. This helps the lender make sure they have the right details to manage any risks.

Periodic Checking

Lenders may consider periodically checking the most updated BOIRs of borrowers after closing. The permission to access BOIRs should encompass future reports at different times. This could be incorporated into the loan agreement, requiring borrowers to provide this permission upon request.

Exemptions and Advocacy

The American Bankers Association (ABA) and the Bank Policy Institute (BPI) have made significant contributions to the conversation. The ABA and the BPI recommend aligning the CTA with the existing CDD Rule to minimize future burdens on banks and their customers. Both groups support adding exemptions already included in the CDD Rule, such as exemptions for state-chartered banks and trust companies, and they emphasize the need to make the CTA consistent with the existing rule.

Are You Prepared To File?

In summary, the CTA is designed to enhance transparency and anti-money laundering efforts, but it also introduces new regulatory complexities for financial institutions. Advocacy from industry groups like the ABA and the BPI seeks to ensure that the transition is as smooth as possible and that the rules align with existing practices, reducing the burden on financial institutions and their customers. Staying informed and preparing for the CTA’s full implementation will be crucial for banks and financial entities as they adapt to the evolving landscape of financial compliance and due diligence.

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CTA Impact on Law Enforcement, Real Estate, and Healthcare

Posted on December 14, 2023December 9, 2024 by Johnna Wahrman

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Introduction

The Corporate Transparency Act (CTA) is bringing significant changes to several key industries, including law enforcement, real estate, and healthcare. Enacted to combat money laundering, tax fraud, and illicit activities, the CTA imposes reporting requirements and responsibilities on businesses. Here, we explore how it will affect these diverse sectors.

CTA Impact on Law Enforcement

The CTA equips law enforcement agencies with a powerful tool to uncover financial wrongdoing. It mandates that reporting companies disclose beneficial ownership information. Beneficial owners are individuals with significant control over the company or who own at least 25% of its ownership interests.Federal and state agencies engaged in national security, intelligence, or law enforcement activities, will have access to this information. It helps them track down those attempting to hide behind shell companies for illegal purposes.

Noncompliance with CTA reporting requirements carries civil and criminal penalties, which include fines of up to $10,000 and imprisonment of up to 2 years. This not only deters illicit activity but also fosters collaboration between businesses and law enforcement.

CTA Impact on Real Estate

The real estate sector faces notable compliance challenges under the CTA. Many real estate businesses, particularly those with numerous legal entities owning and operating properties, will be impacted. The Act captures many real estate limited liability companies and partnerships formed for property ownership.

Entities must disclose information about beneficial owners and company applicants, creating potential privacy and security concerns. However, the CTA aims to enhance transparency and prevent abuse of real estate for illicit purposes. The availability of the FinCEN identifier streamlines reporting for individuals with interests in multiple entities.

CTA Impact on Healthcare

The healthcare sector, including small to medium-sized practices, faces additional paperwork due to the CTA. Medical and dental practices must register as reporting companies, resulting in more administrative burdens.

The Act requires them to provide comprehensive information on beneficial owners and company applicants, with potential penalties for noncompliance. Reporting requirements under this new rule commence in 2024, and practices may need to adjust to the 30-day reporting window for updates (or a 90-day extension in 2024).

Are You Prepared to File?

In conclusion, the Corporate Transparency Act impacts a wide range of industries, from law enforcement to real estate and healthcare. While it brings challenges and additional administrative work, its overarching goal is to promote transparency, reduce illicit activity, and improve cooperation between businesses and regulatory authorities.

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Crucial CTA Exemptions: Large Operating Company

Posted on December 8, 2023December 9, 2024 by Johnna Wahrman

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The Corporate Transparency Act (CTA) mandates that many businesses file a Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN) starting in 2024. These reports disclose details about individuals who own or significantly influence the company. However, there are CTA exemptions: 23 types of entities that are exempt from complying to this filing requirement, one of which is the “large operating company.”This exemption is liable to be one of the most commonly applicable exemption test and is crucial to understand.

CTA Exemptions: Large Operating Company

For a company to qualify as a large operating company and benefit from this exemption, it must meet the following specific criteria:

Employee Count

The company must employ more than 20 full-time employees in the United States. Full-time employees, in this context, work an average of at least 30 hours per week. Parent companies are not allowed to count employees of subsidiaries (or vice versa).

Physical Presence in the US

The company should maintain a physical office within the United States. This means conducting regular business operations at a distinct owned or leased physical location in the US.

Gross Receipts or Sales

The company must have reported more than $5 million in gross receipts or sales in the previous year and reported on an applicable tax return filed in the United States. This threshold doesn’t include receipts or sales from sources outside the US.Notably, this exemption may also extend to certain subsidiaries of large operating companies, provided their ownership interests are controlled by the parent large operating company. Furthermore, if an individual’s ownership in a reporting company is held through exempt entities, the reporting company may report the exempt entities’ names instead of the individual’s personal information.

Are You Prepared to File?

It’s essential for businesses to understand these criteria and exemptions to determine whether they qualify for the large operating company exemption. If a company ceases to meet the criteria, it must file an initial report within 30 days of losing its exemption status.

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Corporate Transparency Act Exemptions: Inactive Entities

Posted on December 5, 2023December 9, 2024 by Johnna Wahrman

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The Corporate Transparency Act (CTA) is a new piece of legislation designed to enhance transparency in the ownership of legal entities in the United States. Among its many provisions, the CTA defines a category of entities known as “inactive entities” that are one of 23 types of companies exempt from these new disclosure mandates. Learn more about this facet of Corporate Transparency Act exemptions below.

Corporate Transparency Act Exemptions

Here is an outline of the requirements that need to be fulfilled to qualify as an inactive entity according to the CTA’s definition:

Formation Date

An inactive entity must have been in existence on or before January 1, 2020, meaning this exemption is not applicable to newly formed entities, but rather those that predate the CTA’s enactment.

Inactive Business

The entity cannot be engaged in active business operations. This implies that it’s not actively conducting commercial activities or providing services.

Ownership

An inactive entity cannot be owned by a foreign person, whether directly or indirectly, either wholly or partially.

Ownership Changes

The entity must not have experienced any change in ownership during the preceding twelve-month period.

Financial Activity

Inactive entities should not have sent or received any funds exceeding $1,000, either directly or through any financial account in which the entity or any of its affiliates had an interest, in the preceding 12 months.

Asset Holdings

Inactive entities should not hold any tangible or intangible assets, whether in the United States or abroad. This includes ownership interests in other legal entities like corporations, limited liability companies, or similar entities.

Does Your Business Qualify for Corporate Transparency Act Exemptions?

An entity that meets all these conditions is exempt from the beneficial ownership information (BOI) reporting requirements. The CTA’s recognition of inactive entities is important because it acknowledges that not all legal entities have the same level of complexity or potential risk for illicit activities. Inactive entities, by their nature, are less likely to be involved in activities that the CTA seeks to regulate, such as money laundering, fraud, or other financial crimes. Therefore, they are granted exemption to reduce the compliance burden on such entities.

Are You Prepared to File?

Ultimately, this exemption is extremely narrow and not many entities will be eligible for exemption under these rules. For businesses that do meet the criteria of inactive entities, it is essential to keep accurate records to demonstrate compliance with these conditions. Business owners and operators of such entities should be mindful of these requirements and consult a professional to confirm their exempt status.

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BOI Report Deadline Extension for Certain Entities

Posted on November 30, 2023December 9, 2024 by Johnna Wahrman

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What Is the BOI Report Deadline Extension?

In a significant development for financial regulation, the Financial Crimes Enforcement Network (FinCEN) has finalized a rule that extends the deadline for certain reporting companies to submit their initial Beneficial Ownership Information (BOI) reports, issued on November 29, 2023. This decision follows a notice of proposed rulemaking, which sought to amend the existing BOI Reporting Rule.The FinCEN final rule stipulates that reporting companies created or registered between January 1, 2024, and January 1, 2025, will now have 90 calendar days to file their initial BOI reports. For reporting companies established on or after January 1, 2025, the original 30-day deadline for submitting initial BOI reports remains in effect.FinCEN received 50 comments in response to the proposed rule, predominantly supporting the extension. These comments came from corporate professionals, small business owners, trade groups, and individuals.While many agreed with the proposed 90-day deadline, some suggested alternatives like a 120-day deadline or aligning the BOI report deadline with tax filing dates. A few commenters advocated for applying the 90-day timeframe to all entities created or registered after January 1, 2024. However, FinCEN concluded that their proposed rule provided sufficient time for entities to adjust to the new reporting requirement.Reminder of Deadlines – Are You Prepared To File?

Reporting companies created on or after January 1, 2024 and before January 1, 2025 have 90 days from the earlier of receiving notice from secretary of state or similar office that creation is confirmed or when there is public notice of the company’s creation in the U.S. to file their report.
Reporting companies created on or after January 1, 2025 have 30 days from the earlier of receiving notice from secretary of state or similar office that creation is confirmed or when there is public notice of the company’s creation in the U.S. to file their report.
Reporting companies created before January 1, 2024 have until December 31, 2024 to file their report.

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