18 January 2024
By William M. Mandell, Esq., Hannah Schindler Spinelli, Esq., and Julie Niejadlik, Esq.
January 16, 2024
The Corporate Transparency Act (“CTA”) is a new federal beneficial ownership information ("BOI") disclosure mandate starting in 2024. While establishing a large specific scope of exempted entities, the CTA does not exempt small professional practices, including medical and dental practices, that are owned and operated as professional LLCs and corporations and those entities will be required to comply with the new law. U.S. Sole proprietors are not subject to this law.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network ("FinCEN") Director Andrea Gacki has stated that “BOI can provide essential information to law enforcement, intelligence, and national security professionals as they work to protect the United States from bad actors who exploit anonymous shell companies to engage in money laundering, corruption, sanctions and tax evasion, drug trafficking, fraud, and a host of other criminal offenses with impunity, while legitimate businesses suffer from their misdeeds.”
Access to the reports filed with FinCEN under the CTA will be limited to: (1) U.S. Federal agencies engaged in national security, intelligence, or law enforcement activity; (2) U.S. State, local, and Tribal law enforcement agencies; (3) foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities (foreign requesters); (4) financial institutions using BOI to facilitate compliance with customer due diligence (CDD) requirements under applicable law; (5) Federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity assessing financial institutions for compliance with CDD requirements under applicable law; and (6) Treasury officers and employees.
Certain non-profits and “large” for-profit entities with 20 or more employees and over $5 million in revenues may be exempt. To qualify for the large operating company exemption, a for-profit entity would need to (i) directly employ more than 20 full-time employees in the United States; (ii) have a physical office in the US; and (iii) have already filed a federal income tax return for the previous year showing more than $5 million of gross receipts or sales. There are also certain other exempted categories of entities, see https://www.fincen.gov/boi-faqs#C_2.
Unless exempt, all new corporations and LLCs (including professional entities that may already disclose their ownership) created in 2024 must file an ownership disclosure report to FinCEN within 90 days of establishment, and all pre-2024 existing corporations and LLCs (again, including professional entities that may already disclose their ownership) must file an ownership disclosure report to FinCEN by January 1, 2025. All new corporations and LLCs created on or after January 1, 2025 will have 30 days of establishment to file their initial BOI report with FinCEN.
Noble stated purpose aside, most state laws already require public disclosure of all owners of professional entities in legal entity filings, which are available on the public databases of each state's Secretary of State's office. That said, the Treasury’s FinCEN Reporting Rule does not explicitly exclude PLLC and PCs that already report ownership information publicly as being exempt from BOI reporting to the FinCEN system. So, new and existing small professional practices must be aware of and satisfy this new additional reporting obligation.
The BOI reports will disclose basic information about the corporation and LLC (legal name; any trade or dba names; current street address; state of formation; and its Taxpayer Identification Number), and information about each beneficial owner of the LLC or corporation who, directly or indirectly, owns at least 25 percent of the ownership interests or any other person who exercises substantial control over the corporation or LLC as a director, manager or officer (name; date of birth; residential address; and an identifying number from and image of an acceptable identification document such as a passport or driver’s license).
For new entity filings, the following information about the lawyers, paralegals or CPAs filing the incorporation documents will have to be included in the BOI report (name; date of birth; company address; and an identifying number from and image of an acceptable identification document such as a passport or driver’s license).
There is no annual reporting requirement. Reporting companies must file an initial BOI report and then only when the information from the initial BOI report needs to be updated or corrected.
Failure to file the BOI report to FinCEN or update changes in reported information can result in a civil penalty of up to $500 for each day that the violation continues, or criminal penalties for willful violations including imprisonment for up to 2 years and/or a fine of up to $10,000.
For more information and to file the required report to the U.S. Department of the Treasury’s FinCEN, go to https://www.fincen.gov/boi
Feel free to contact Bill Mandell, Esq. at firstname.lastname@example.org, Hannah Schindler Spinelli, Esq. at email@example.com, or Julie Niejadlik, Esq. at firstname.lastname@example.org for more information about our representation of professional practices affected by this new law.