Legal Bulletins

The United States Congress passed the Corporate Transparency Act (CTA) in 2021 to help prevent and combat money laundering, terrorist financing, tax fraud and other illicit activity. Among other things, the CTA requires private companies operating in the United States to report information regarding their beneficial owners and key decision makers to the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department. 

The CTA’s reporting rules (Reporting Rules) become effective on January 1, 2024. Unless exempt, a legal entity that was formed by virtue of filing a document with a state government—including limited liability companies and professional corporations—must file a Beneficial Ownership Information Report (BOI Report) by a certain deadline. 

Accordingly, every non-exempt private company in the United States, including medical practices and other health care providers, should become aware of, and take steps to comply with, the new Reporting Rules. 

Which Companies Must File? 

The general rule is that a company is a “reporting company”—and is therefore required to file a BOI Report—if it is a corporation, limited liability company, or “other similar entity” that is created when a document is filed with a state’s secretary of state or similar office.

By contrast, other business arrangements, such as sole proprietorships and general partnerships, are not “reporting companies”—and are therefore not subject to the Reporting Rules—because they operate according to common law principles and are not created or registered by filing a document with a state agency.

What Are the Exemptions?

The CTA expressly excludes 23 categories of relatively large or highly regulated businesses from the definition of “reporting company.”

The exemptions most applicable to private health care providers are: (1) insurance companies; (2) tax-exempt entities; (3) entities assisting tax-exempt entities; (4) subsidiaries of tax-exempt entities; and (5) so-called “large operating companies.”

A “large operating company” is a business which: (1) employs more than 20 full-time employees in the United States; (2) has an operating presence at a physical office in the United States; and (3) has filed a federal income tax return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales, excluding from sources outside of the United States.

Which Individuals Must Be Identified?

If a health care provider is a reporting company, it must file a BOI Report with information about its (a) beneficial owners and (b) company applicant.  An individual is considered a “beneficial owner” if the individual exercises “substantial control” over the company, directly or indirectly, or if an individual owns at least 25% of the ownership interests in the reporting company.

A newly formed reporting company must also include information about its “company applicant.”  A company applicant is the individual who directly files the reporting company’s formation documents with the applicable state agency and can include up to one other person who is primarily responsible for directing or controlling that filing.  Only companies that are formed after January 1, 2024, must include information about the company applicant.

What Information Must Be Reported?

A reporting company’s BOI Report must include:  (1) the full legal name of the reporting company; (2) any trade names or “doing business as” names; (3) The company’s complete current physical address; (4) the state, tribal or foreign jurisdiction of formation; and (5) the company’s taxpayer and employer identification numbers.

Congress passed the CTA because of a lack of transparency with respect to who owns and controls entities operating within the United States.  Therefore, the Reporting Rules require a reporting company to include the following information for each of its beneficial owners and company applicant on its BOI Report: (1) the individual’s full legal name; (2) the individual’s date of birth; (3) the individual’s complete current address; (4) a unique identifying number from the individual’s state-issued driver’s license, passport or similar document; and (5) a scanned image of the individual’s driver’s license, passport or whichever document contains the unique identifying number used on the BOI Report.

When the Reporting Rules go into effect, individuals and reporting companies alike will be able to apply for a unique identifying number, called a FinCEN Identifier, which can be included on a reporting company’s BOI Report in lieu of the personally identifiable information listed above.

FinCEN will keep this information in a private database, accessible only by the U.S. Treasury Department and certain law enforcement agencies on a need-to-know basis.  Banks and certain other financial institutions may be permitted access to the database to facilitate compliance with mandatory customer due diligence requirements, but only after obtaining a reporting company’s consent.

When Must Reports Be Filed?

Non-exempt legal entities that were formed prior to January 1, 2024, have until   January 1, 2025, to file their initial BOI Reports.

A new, non-exempt health care provider with an incorporation or formation date which is on or after January 1, 2024, and before January 1, 2025, has 90 days to file its initial BOI Report.

Non-exempt health care providers that are formed on or after January 1, 2025, have 30 days to file their initial BOI Reports.

The 90-day and 30-day periods begin on the earlier of (i) the date of receipt of actual notice of a successful filing or (ii) the date the applicable state agency provides public notice of the entity’s existence in the state’s online business database.

If a reporting company’s beneficial ownership information changes, it has 30 days from the date the ownership change occurred to file an updated BOI Report.  An updated BOI Report is only required if there is a change to information reported about a reporting company or its beneficial owners; a reporting company is not required to file an updated or corrected BOI Report for any changes to previously reported information about a company applicant.

Also, corrected BOI Reports must be filed within 30 days of the reporting company becoming aware of or having reason to know that a correction is needed.  However, to avoid penalties, reporting companies must file corrected BOI Reports within 90 days of the date the inaccurate report was filed.

Further, if a reporting company becomes exempt from the Reporting Rules after filing a BOI Report, for example, if sales fluctuate above five million dollars, then the company will need to file an updated BOI Report indicating that it will not be making any further filings.  If a previously exempt reporting company loses its exemption, it must file a BOI Report within 30 days of the date that it no longer meets the criteria for any exemption.

BOI Reports are filed electronically with FinCEN and then stored in a secure nonpublic database, referred to as the Beneficial Ownership Secure System (BOSS).  

What Are the Penalties?

The CTA provides civil and criminal penalties, including a fine of $500 per day (up to $10,000), imprisonment or both.
While it is the reporting company that it ultimately responsible for filing its initial BOI Report and any subsequent updated or corrected reports, an individual, such as a senior officer of the reporting company, may be subject to civil or criminal penalties for willfully causing a company not to file its BOI Report by the applicable deadline.

If you have any questions, please contact, Barry  F. Rosen, Michele Bresnick Walsh, Abba D. Poliakoff, Kelcie L. Longaker, or James J. McKittrick Jr.

Barry F. Rosen
410-576-4224 • brosen@gfrlaw.com

Michele Bresnick Walsh
410-576-4216 • mwalsh@gfrlaw.com

Abba David Poliakoff
410-576-4067 • apoliakoff@gfrlaw.com

Kelcie L. Longaker
410-576-4264 • klongaker@gfrlaw.com

James J. McKittrick, Jr.
410-576-4134 • jmckittrick@gfrlaw.com
 

A version of this article appeared in Topics, Fall 2023.