Final Ruling Issued by FinCEN on the Corporate Transparency Act (CTA)

A final ruling has been made by the Financial Crimes Enforcement Network (FinCEN) in regard to the Corporate Transparency Act (CTA). The ruling, which was only just issued on September 30th 2022, comes eighteen months after the CTA was first ratified on January 1st 2021. Below, we try to break down what this final CTA ruling will mean for business owners big and small alike in the United States.

What we already knew…

The CTA is a groundbreaking new ruling issued by  FinCEN, whose primary goal is to force businesses both new and previously existing in the U.S. to be more transparent. The CTA is part of the larger 2021 National Defense Authorization Act (NDAA), and asks businesses to provide detailed information on its beneficial owners. The CTA defines a “beneficial owner” as anyone who:

  • Exercizes significant control over the entity (e.g. plays a pivotal role in decision-making, is a senior executive, or can appoint new senior staff members);
  • Owns or controls at least 25% of the company’s ownership interests.

The information provided about these beneficial owners (name, address, role in company, etc.) would allow FinCEN to ensure that criminals do not use the said entity to launder money from illegal activities.

So what did we learn from the final ruling?

While it was well-known that the CTA would require information along these lines, it was yet unclear what information was needed, exactly, and when the deadline for filing it would be. The recently published final ruling has made all of that very clear.

When will CTA reports be filed?

Since FinCEN differentiates between already existing businesses, and the ones that are just being formed, it has allowed for two different filing deadlines.

As of January 2024, newly formed businesses are required to file all the relevant information within 30 days of incorporation. From then on, filing the CTA report will be part of the hurdles a new business needs to go through, to be recognized.

Companies formed after January 2024 will also have to disclose information on the company that helped them form (e.g. an incorporation service). Companies formed prior to January 2024, however, will not have to provide any such information. As for existing businesses, FinCEN has allowed for a little more leeway, setting the reporting deadline on January 1st 2025.

How will the CTA reports be filed?

All reports will be filed through a digital portal called the Beneficial Ownership Secure System (BOSS). So far, this seems to be the only method for companies and individuals to file their reports, as no mailing option has been announced. Having previously announced that the CTA filing would follow a similar system to tax filing, the BOSS filing system is designed to make the process as quick and effective as possible.

Reminder – individuals will be given a choice between filing their private information directly through the company, or on their own. If you are among the individuals who need to file a report, but wish to keep your information private, FinCEN allows that, although filing may be easier when done directly through the company.

What information needs to be filed?

While before all we could do was speculate, this final ruling has provided some much-needed clarity as to what information BOSS filing will require.

Reporting companies will need to provide:

  • The full legal name, as well as any trade or “doing business as” names;
  • The complete street address – the final ruling has made it clear that PO boxes or registered agent mailing addresses will not be accepted;
  • State/foreign jurisdiction of formation;
  • The IRS Taxpayer Identification Number (TIN)

The final FinCEN ruling has also provided some clarity as to what information beneficial owners will need to provide:

  • The legal name;
  • Date of birth;
  • The full address – as above, the final ruling makes it clear that only residential street addresses will be accepted, and not PO box or business addresses;
  • A unique identifying number from a legally identifying document (e.g. valid driver’s license, passport, or national ID);
  • A picture of the document from which that number is taken – overseas passports are permitted, but only if the beneficial owner does not have any U.S. documents;

Why aren’t business addresses permitted?

The problem with providing a business address is that multiple people can be associated with the same address. This can make it confusing for the authorities, should they need to pursue a specific individual.

Contrary to expectations, beneficial owners will NOT be asked to provide a social security number (SSN) or a tax identifying number (TIN).

How much will it cost?

While the only way to know precisely how much BOSS filing will cost is to actually file the information, FinCEN has offered some general estimates. For initial reports, FinCEN estimates that BOSS filing may cost between $85 and $2600.

That’s quite the gap… why? Well, it stands to reason that the more complex the information you’re filing is, the more you’ll have to pay. Basically, what will determine the overall cost for filing will be details like the size of your company, the complexity of your executive structure, etc.

FinCEN has also estimated that updated reports will cost around $37 – $560, also depending on the complexity of BOSS filing.

What are updated reports?

All (existing and new) companies are required to file an initial report, detailing the above information. However, most of these reports will include a lot of variable information that may change at any moment. Even if the address of a single beneficial owner changes, that needs to be updated within the company’s CTA filing within a reasonable period of time. Or else, they will face penalties.

FinCEN, together with actual filers, estimate spending about 170 million burden hours collectively to finalize all BOSS filings for U.S. entities. The estimated overall cost of those hours is around $22 billion USD between filing entities and FinCEN.

Final Thoughts

The newly-unveiled BOSS filing system aims to make CTA reporting as easy and smooth as can be, both for FinCEN, and the relevant authorities, but also for the beneficial owners and businesses that need to report.

As such, we urge that you take advantage of this new ease of filing, and prepare all the relevant information ahead of time, lest you be subjected to penalties. Hopefully this article has given you a clear idea on how to do that!

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