Skip to main content

Corporate Transparency Act

By

As of January 1, 2024, the Corporate Transparency Act (CTA) has taken effect. The Act was originally signed in 2021 but has taken several years of planning to implement. We wanted to walk through some of the basic guidelines to clarify who needs to file the paperwork to comply with this new act. 

The CTA was created to help the Financial Crimes Enforcement Network (FinCEN) with tracking and discovering fraudulent entities that are laundering money, hiding assets, and funding illegal activities. The information that needs to be filed is fairly straightforward for the majority of businesses that need to file a report. We want to focus on the basics throughout this overview. If you have any questions or more complex situations please contact us and we can talk through your situation with you. 

The first step to filing a Beneficial Ownership Information (BOI) report is to determine if the business is formed in such a way that it is subject to the CTA. Only entities that are formed by filing with the Secretary of State are required to file a BOI report. The most common types of entities are LLCs, Corporations, and some types of partnerships. 

Once an organization has determined that it needs to file a BOI, then it can work on determining who the beneficial owners are. This is the step that gets messy since multiple ways would qualify an individual as a beneficial owner. Some of the ways to qualify are as follows; owns 25% or more of the business's equity, serves as a key decision maker in the business, or is an officer, director, or manager. The definition is very broad which leads to some interpretation in larger organizations. 

After the beneficial owners have been identified the data collection process can start. To file the reports an entity will need to collect the following information. 

  • Information about the entity:
    • Legal Name
    • Trade name, if any
    • Address of the business (this cannot be a P.O. Box)
    • Tax identification number
  • Information about beneficial owners:
    • Name 
    • Date of birth
    • Residential address
    • A copy of an unexpired photo identification (ex. driver's license, passport, or state identification card)
If any of this information changes or an individual's identification expires, then the business has 30 days to update the information with FinCEN by filing a new BOI. 

Certain businesses will be exempt from the BOI reporting requirements, as well as large entities. The definition of a large entity is an entity that has 20 or more employees at all times, has more than $5 million in United States sales, and has a physical office in the U.S. If an organization does not meet all of these requirements then they are considered a small organization and required to file the BOI report. 

That covers all of the reporting requirements, except for the due date of the report. If the entity existed before 1/1/2024 then it has until 1/1/2025 to file the BOI report. However, if the entity was formed after 1/1/2024 then it must file the BOI within 90 days of being created. The penalties for not filing a BOI range from $500 per up to 2 years of imprisonment. FinCEN is taking this reporting very seriously, so entities must complete this filing promptly.

If you have any questions on about your entity's specific situation please do not hesitate to reach out. 




Comments

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...
Post a Comment
Read more

Review: Form 1099 Payments to 501(c)(3) Organizations

By Anonymous
Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries
2 comments
Read more

Housing Allowance and Form 1099-MISC Reporting

By
Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa...
Read more