Implementation of the Corporate Transparency Act (CTA)

By Barry A. Nelson, Jennifer E. Okcular and Cassandra S. Nelson

In this letter to our clients, we discuss two important changes on the horizon. The implementation of the Corporate Transparency Act (“CTA”), which will impose significant new reporting requirements on many businesses, and the sunsetting of the increased estate and gift tax exemption amounts at the end of 2025. These changes may affect many of our clients and we want to make sure you are aware of the filing requirements and deadlines. Action may be required before the end of 2024 to lessen or delay the impact of the CTA should it apply to you.

After reading this letter, visit our BOI Filing page for deadlines and more information about e-filing your Beneficial Ownership Information report.

FILING YOUR BOI

Dear Client:

We are writing to inform you about two important changes on the horizon. The first is the implementation of the Corporate Transparency Act (“CTA”), which will impose significant new reporting requirements on many businesses. Second is the sunsetting of the increased estate and gift tax exemption amounts at the end of 2025. While the primary focus of our firm is estate planning, the CTA filing requirements affect many clients, and we wanted to be proactive to make sure you are aware of the filing requirements described below. The bulk of this letter concerns the CTA, due to its broad reach and the potential for significant civil and criminal penalties. Action may be required before the end of 2024 to lessen or delay the impact of the CTA should it apply to you.

It is important to note, however, that on March 1, 2024, an Alabama federal judge struck down the CTA as unconstitutional (National Small Business United d/b/a National Small Business Association v. Yellen, Case No. 5:22-cv-1448-LCB (3/1/2024)). At the time of this letter, it is unclear whether the US government will appeal the ruling and what the ongoing obligations under the CTA are. We will continue to monitor CTA developments. In the meantime, we provide information regarding the CTA, including the filing requirements and penalties and suggest that you consult with your business attorneys to make sure you will comply with the CTA if it remains in effect.

I. CTA

General Application of the CTA: On January 1, 2021, Congress passed the CTA as 31 U.S. Code §5336, which is part of the Anti-Money Laundering Act of 2020. It is intended to assist in uncovering bad actors seeking to conceal ownership of corporations, LLCs, and other similar entities in the United States that could be used to facilitate money laundering, financing terrorism, tax fraud, and other illegal acts by requiring Beneficial Ownership Information Reporting (“BOI Report”) with the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”).

On November 29, 2023, FinCEN issued a final regulation under the CTA. Reporting Companies created or registered during the 2024 calendar year must file a BOI Report within 90 calendar days from the date of their formation. Reporting Companies created or registered on or after January 1, 2025, must file a BOI Report within 30 days from the date of their formation.

A “Reporting Company” is any corporation, limited liability company, or other similar entity that is (i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe. A list of certain exclusions to a Reporting Company are listed on Schedule A. Since the exclusions do not generally apply to our clients, you should consider that all newly created entities will be considered as a Reporting Company and have an obligation to file a BOI Report soon after formation.

For any Reporting Company created or registered prior to January 1, 2024, a BOI Report must be filed no later than January 1, 2025 unless Congress extends the deadlines as described in the following paragraph.

On December 12, 2023, the House of Representatives (the “House”) passed a Bill (HR 5119) extending the CTA deadlines. If the Bill, as it is, is passed by the Senate and the President, the following changes will be made to the CTA:

• The initial BOI filing deadline for entities created before 2024 would be extended to January 1, 2026 (rather than January 1, 2025).
• All companies formed after January 1, 2024, would have 90 days to file their BOI Reports.
• The deadlines for any updates to the report would be extended to 90 days. This extension would not apply to corrections to the report, only changes from updates.
• The BOI Report Requirements would be amended to clarify that Reporting Companies are not allowed to submit a report describing how the company is unable to obtain identifying information, i.e., driver’s licenses and passports. This provision appears to prohibit FinCEN from excusing entities if they cannot obtain the necessary information to comply with the BOI Report requirements.

Note: The Bill has been received by the Senate, read twice, and referred to the Committee on Banking, Housing, and Urban Affairs.

Beneficial Ownership Information Report (BOI Report): The Reporting Company is required to file the BOI Report online with FinCEN. E-filing is available at the FinCEN website. (See Beneficial Ownership Information FAQs.) It will collect the information set forth on Schedule B. The reporting information includes the Company Applicant of the Reporting Company. A Company Applicant is the individual who:

• directly files the document that creates the Reporting Company, or in the case of a foreign Reporting Company, the document that first registers the entity to do business in the United States; or
• is primarily responsible for directing or controlling the filing of the relevant document by another party (this may cause lawyers and accountants providing advisory services to qualify as a Company Applicant).

The reporting of a Company Applicant only applies to a Reporting Company created after December 31, 2023. However, for a Reporting Company created prior to January 1, 2024, a lawyer or accountant providing advisory services to such entity could qualify as a person providing substantial control requiring such person to be included on the BOI Report.

Pursuant to regulations published by FinCEN, “substantial control” may consist of directing, determining, or having substantial influence over important decisions made by the Reporting Company. The Small Entity Compliance Guide published by FinCEN in September 2023 provides that a person with substantial control is any person with substantial influence over important decisions made by the Reporting Company, including the structure of the Reporting Company or making any amendment to the governing documents of the Reporting Company (i.e., Articles of Incorporation, Articles of Organization, bylaws, and/or shareholder or operating agreements).

Because the CTA is purposefully worded to apply broadly, we have a concern that serving as a registered agent for a Reporting Company with an obligation to accept service of process and provide such service of process to our clients could be considered substantial control as to a Reporting Company. Accordingly, after December 31, 2023, neither Nelson & Nelson, P.A. nor its employees will (A) serve as a registered agent of, or file an annual report for, any entity to avoid being considered to have substantial control, (B) create any entity to avoid being a Company Applicant, or (C) allow its office address to be used as the principal address of any entity. For entities for which we currently serve as a registered agent or principal place of business, we will arrange to remove ourselves as such and will correspond with those clients directly so that they take the required steps to select a new registered agent or revise the principal place of business on the 2024 Annual Report. You can contact the person or entity set forth below to provide registered agent and principal place of business services commencing in 2024:

Glinda Bennett

Corporate Access, Inc.

236 E. 6th Avenue

Tallahassee, Florida 32303

(800) 969-1666 or (850) 222-2666

(850) 222-2666

orders@cai.services

For CTA requirement filing services visit our BOI Filing page.

In connection with providing legal advice and services to clients, please note that Nelson & Nelson, P.A. and its employees do not have substantial influence with respect thereto, as such decisions are ultimately made by the client.

Updated BOI Reports: If any information on the initial BOI Report changes (e.g., a 25% beneficial owner relocates their residence or changes their name due to a marriage or divorce), an updated BOI Report must be filed within 30 days of such change.

Beneficial Owners: Any individual who directly or indirectly (1) exercises substantial control over the entity or (2) owns or controls not less than 25% equity in the entity. In the BOI report, FinCEN requires the owner’s name, date of birth, residential or business address, and a unique identifying number from an acceptable identification document (such as a state driver’s license or passport). The purpose of collecting this sensitive data is to enable authorized recipients, such as law enforcement and regulators, to combat criminal activity such as money laundering and the financing of terrorism.

FinCEN Identifier: To the extent that you are an investor or involved with multiple Reporting Companies, FinCEN will be issuing a FinCEN Identifier so that such person can provide that identifier in lieu of providing personal details (e.g., driver’s license or passport) to a third party for a Reporting Company.

Penalties for Noncompliance: Any person who willfully fails to report complete or updated information pursuant to the BOI Report or willfully provides or attempts to provide false or fraudulent information is subject to civil and criminal penalties of up to $500 per day for the period that such violation continues or has not been remedied, with fines of up to $10,000 and imprisonment of up to 2 years.

Compliance with CTA: For Reporting Companies created after December 31, 2023, the Reporting Company must timely file a BOI Report and update it if any information changes. For Reporting Companies created prior to January 1, 2024, the initial BOI Report must be filed by January 1, 2025, and must also be updated as necessary. Nelson & Nelson, P.A. will not be providing CTA compliance services. You should be collecting the information needed to file an initial BOI Report for any Reporting Company. Alternatively, you can contact third-party service providers—such as your accounting firm—that offer CTA compliance services. If Nelson & Nelson, P.A. or its employees currently serve as a registered agent or are listed as a principal address, you should select a new registered agent and update the principal address on the 2024 Annual Report. Nelson & Nelson, P.A. will be filing resignations as Registered Agent.