As the end of the year approaches, small business owners nationwide need to be aware of a critical requirement under the Corporate Transparency Act (CTA). This act took effect in January 2024 and mandates that businesses report information about their beneficial owners. Failing to comply with this new law could lead to serious penalties, including large fines assessed for each day you’re in violation and even jail time. If you own a business or any part of an entity formed through the Illinois Secretary of State, you must determine whether the CTA applies to you and plan accordingly.
What Is the Corporate Transparency Act?
The Corporate Transparency Act (CTA) was introduced to combat illegal activities like tax fraud and money laundering. The goal is to ensure that businesses operating in the United States disclose who controls the company and who all of the beneficial owners are. The theory behind the law is that registering this information through a federal agency will help prevent individuals from hiding behind shell companies to commit illegal acts.
The law requires businesses to submit a Beneficial Ownership Information (BOI) report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report must provide details about individuals who own or control at least 25% of the business or have a significant role in their decision-making processes.
Does Your Business Need to File a Report?
According to the U.S. Chamber of Commerce, not every business must submit a BOI report under the CTA. For instance, large companies with over 20 full-time employees and over $5 million in annual revenue are exempt, along with certain other types of businesses, like banks and nonprofits. However, small businesses such as limited liability companies (LLCs), corporations, and partnerships likely fall under the requirements of the CTA.
If your business was formed before Jan. 1, 2024, you have until Jan. 1, 2025, to file your initial report. If your business was created after Jan. 1, 2024, you must submit your report within 30 to 90 days, depending on when your business was established.
What Information Do You Need to Provide?
When submitting a BOI report, your business must provide specific information about both the company and its beneficial owners. This includes:
- The company’s full legal name and any trade names it uses.
- Its principal place of business in the U.S.
- The company’s tax identification number.
- For each beneficial owner, you must include their date of birth, residential street address and identification number from a government-issued ID, such as a driver’s license or passport.
Additional information about the individuals who helped form the company, known as “company applicants,” may also be required for newer companies.
What are the Penalties for Missing the Deadline?
Missing the January 1, 2025, deadline for submitting your business’s BOI report could lead to severe consequences. Fines for failure to report are up to $591 per day of your violation, other violations can reach up to $10,000, and there’s even the possibility of imprisonment for up to five years. Failure to correct inaccurate or incomplete information within 30 days of a change can also result in further penalties.
If you’re unsure whether your business needs to comply with the CTA or have concerns about meeting the deadline, seeking legal guidance is essential. A business planning attorney can help to ensure that you fulfill your reporting obligations and avoid costly mistakes.
What Steps Should You Take Before the Deadline?
To prepare for the year-end deadline, take the following steps:
- Determine if your business is subject to the CTA. Review the CTA’s requirements to confirm whether your business must file a BOI report.
- Gather necessary information. Identify all beneficial owners and gather their required information, such as identification numbers and addresses.
- Submit your report on time. To avoid penalties, file your BOI report by the applicable deadline.
- Stay vigilant. If any information changes after your initial filing—such as your home address changes, the office address changes, or a change in ownership/business structure—you must update your report within 30 days.
Can You Get Help with Your BOI Report?
Filing a BOI report may seem straightforward. However, there are specific legal requirements that can be easily overlooked. Business owners are encouraged to work with a qualified business planning attorney to ensure that their report is accurate and complete. Not all accountants or tax preparers offer this service, so it’s crucial to consult a professional who can guide you through the process.
Ensure Your Business is CTA Compliant: Schedule a Reporting Strategy Session Today
If you’re a business owner in Illinois, or own a portion of any entity formed through the Illinois Secretary of State, and you’re unsure if the Corporate Transparency Act applies to your small business or need assistance filing your BOI report, now is the time to act. Contact our law firm today and we’ll be happy to help answer any initial questions, navigate the requirements of the CTA, or refer you to someone who can help with any complex reporting issues for your business.
Key Takeaways:
- Understand Compliance Requirements: Filing a BOI report under the Corporate Transparency Act is essential for small businesses and small business owners.
- Avoid Penalties: Missing the Jan. 1, 2025, deadline could result in fines of $591 per day for a violation, $10,000 fines for specific violations, and even potential jail time.
- Identify Beneficial Owners: Gather the required information for all individuals who own or control at least 25% of your business.
- Update Information Promptly: Report any changes for any individual reporting, the business, or any changes in ownership or control within 30 days to stay compliant.
- Consult an Attorney: Seek assistance of a legal or tax professional to ensure that your report is accurate and submitted on time.
Reference: U.S. Chamber of Commerce (Aug. 27, 2024) “Corporate Transparency Act — What You Need to Know”
DECEMBER 3, 2024 UPDATE: CORPORATE TRANSPARENCY ACT INJUNCTION – HOLD YOUR HORSES
The Corporate Transparency Act (CTA) was invalidated temporarily less than one month before the reporting deadline. On December 3, 2024, the US. District Court for the Eastern District of Texas blocked enforcement of the Corporate Transparency Act by issuing a preliminary injunction and its reporting rule. The Court’s Order states:
“Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of court.”
This article was initially written on December 1st and go figure, two days later the law’s enforcement was put on pause while the appeal process works its way through the courts. If you’re interested in reading the full 79 page opinion, enjoy!
If you’re an Illinois business owner and you’ve made it this far, I’m guessing you’re asking yourself how this applies to you and if you need to file or not? To save you the time, after speaking with my accountant and many of my colleagues, it seems like the collective approach being recommended is to go ahead and file because none of us know how this will play out. We would rather not have to scramble to file or face the possibility of being in violation. Everyone seems to think that with the approaching change in the White House the CTA will most likely not survive in the long run, but for now, it seems most of the professionals and nerds that closely follow this issue are planning to file before the end of year, just in case.
My apologies for the update and mid-week amendment to an article written mere days before, but for anyone who’s made it this far let me know your thoughts on how you think this will shake out and what you plan to do.
This article is a service of Family Wealth & Legacy Legal Solutions (FWLLS). At FWLLS, we do not just draft documents; we ensure you make educated, informed and empowered decisions for yourself and the people you love. That’s why we offer a Family Wealth & Legacy Strategy Session™, during which you will get educated and begin to prepare to avoid life’s most common legal problems and get a plan in place to make the best possible choices for the people you love. You can begin by calling our office today to schedule a Family Wealth & Legacy Strategy Session and mention this article to find out how to get this $900 session at a significantly discounted rate, or even for free.