The Corporate Transparency Act
SCAM ALERT: The US Treasury Financial Crimes Enforcement Network sent an alert about ongoing scams involving fraudulent letters and emails aimed at unlawfully extracting money and sensitive information from businesses obligated to report under the new Corporate Transparency Act. Dental practices required to report under this law should submit their reports exclusively through the official federal agency's website. In the event of a suspicious communication related to compliance, it is crucial to verify its legitimacy directly with the agency by contacting them here.
About the Corporate Transparency Act
The bipartisan Corporate Transparency Act was enacted in 2021 to help curb illicit finance such as money laundering. It requires many companies doing business in the United States to report information about the individuals who ultimately own or control them. Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are associated with the reporting company.
Dental practices should file a report if they meet either criteria: (1) employ less than 20 employees; (2) generate less than $5 million in revenue annually. New dental practices formed in 2024 will have 90 days from the formation of the new practice to file a report. Dental practices in business before 2024 must complete their report before the January 1, 2025, deadline.
Reporting is not an annual requirement. A report only needs to be submitted once, unless the filer needs to update or correct information. For instance, if a “beneficial owner” changes their address, legally changes their name due to marriage or divorce, or obtains a new driver's license, it may necessitate an update.
Generally, reporting companies must provide four pieces of information about each beneficial owner.
- name;
- date of birth;
- address; and
- the identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.
The company must also submit certain information about itself, such as its legal name(s), any trade names, and address. In addition, they must submit information about the individuals who formed the company (the “company applicants”).
Who must report
Companies required to report are called reporting companies and the Corporate Transparency Act specifically names two types of reporting companies:
- Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies are legal entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
However, an entity’s activities and revenue, along with other factors in some cases, can qualify it for an exemption. Additionally, the CTA definitions of ownership may not match perfectly with state licensure definitions, so dental offices may wish to seek guidance from their tax accountant and report accordingly.
Exemptions
There are 23 types of entities that are exempt from the reporting requirements. Review the qualifying criteria carefully.
A specific exemption exists for an entity that (i) employs more than 20 employees on a full-time basis in the United States; (ii) filed in the previous year Federal income tax returns in the United States demonstrating more than US$5 million in gross receipts or sales; and (iii) operates and has a presence at a physical office within the United States.
Other exemptions include banks, credit unions, SEC-reporting companies, tax-exempt entities, insurance companies and public accounting firms. FinCEN’s Small Entity Compliance Guide provides additional information concerning exemptions.
When to file:
Companies that are required to comply (a “reporting company”) must file their initial reports by the following deadlines:
- A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOI report.
- A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.
- A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.
How to file:
If your business is required to report, the process is done electronically through a secure filing system available via FinCEN website. The BOI E-Filing System is found here: https://boiefiling.fincen.gov/.
There is no fee for submitting your BOI report to FinCEN.
Anyone whom the reporting company authorizes to act on its behalf—such as an employee, owner, or third-party service provider—may file a BOI report on the reporting company’s behalf. When submitting the BOI report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number.
While it has been designed to be user friendly and easy to navigate, companies may choose to retain any number of third-party corporate service providers to prepare and file the BOI reports on their behalf.
Penalties for Violating the CTA
Any person who provides false information or fails to comply with reporting requirements is liable for civil penalties of no more than US$500 for each day that the violation continues. Violators are also subject to criminal penalties of imprisonment of up to two years and fines of up to US $10,000.
In addition to being subject to criminal and civil penalties, failure to comply with the CTA could have other adverse consequences.
For example, potential purchasers in a merger and acquisition or investors in a priced round financing will most likely consider confirming whether the company is a reporting company and if the company is abiding by and in compliance with the requirements set forth in the CTA.
AAE is aware that some special interest groups are mounting a defense against the CTA, claiming it will not work as intended and will put too great a burden on millions of small businesses. Despite calls for legal or legislative challenges, AAE encourages its members to be prepared to comply with the policy before year end.
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Definitions/Terms
- Beneficial owner - A beneficial owner of a reporting company is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls at least 25% of the equity interests of the entity.
“Substantial control” encompasses individuals who (i) serve as a senior officer of the reporting company, (ii) have appointment or removal authority over the senior officers and board of directors, (iii) can direct, determine, or have substantial influence over important decisions within the company, and (iv) have any other type of substantial control over the company.
- Beneficial ownership information - Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company.
- Company applicant – the individual who directly filed the creation or first registration document with the secretary of state or similar office. Can also be the individual primarily responsible for directing or controlling the filing or creation of that first registration document.
A reporting company must report its company applicants only if it is either a:
- Domestic reporting company created in the United States on or after January 1, 2024; or
- Foreign reporting company first registered to do business in the United States on or after January 1, 2024.
- Reporting company - Companies that are required to comply with the Corporate Transparency Act.
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References
https://www.fincen.gov/boi-faqs
https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act
https://www.nytimes.com/2023/12/07/us/politics/corporate-transparency-act-lobbying.html