Ag News
Are you compliant with Corporate Transparency Act?
Posted on Aug 15, 2024 at 6:01 AM
By Jay Stone
NOTE: This article does not constitute legal advice. For guidance on complying with the Corporate Transparency Act, consult with an attorney or your accountant.
The Corporate Transparency Act (CTA) of 2021 requires businesses to file a Benefical Ownership Interest Report (BOIR) detailing who owns the business and who holds major decision-making authority over it.
The U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) is implementing the law that went into effect Jan. 1, 2024. Businesses in existence at that time must file their BOIR by Dec. 31.
Businesses formed during 2024 have 90 calendar days after their formation to file a BOIR. Companies formed after Jan. 1, 2025, must file the report within 30 days of being formed.
“They want to know who owns all of these small businesses across the country,” said National Ag Law Center Senior Staff Attorney Rusty Rumley, who spoke at the Georgia Farm Bureau Commodity Conference Aug. 8. “The stated purpose is to look for tax evasion and money laundering.”
The potential penalties for failing to file the report are $500 for each day not in compliance, with a maximum of $10,000, and up to two years in prison.
The law requires any business that is incorporated – limited liability companies (LLCs), limited liability partnerships (LLPs), limited partnerships (LPs) and other businesses formed through a state office in which a business is incorporated, such as the Georgia Secretary of State – to file a BOIR with FinCEN.
The BOIR includes identifying information about the business and personal identifying details of all “beneficial owners.” Beneficial owners are individuals who own or control at least 25% of the reporting company, or anyone who exercises substantial control over the reporting company, like a president, CEO, CFO or general counsel.
“Any farm that has an LLC, which quite a few of them do, or an S-corporation, you're going to have to register your business with the federal Department of Treasury,” Rumley said.
Businesses already under extensive regulatory requirements that qualify as a “large operating company” are exempt from having to file a BOIR, but many farms or ag businesses may not qualify.
FinCEN defines a “large operating company” as one that meets all of the following criteria: has more than 20 full time employees in the U.S.; physically operates in the U.S.; filed a federal income tax return or information return in the U. S. for the previous year; reported $5 million in gross receipts or sales on IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form; and the entity’s amount of gross receipts or sales remains greater than $5 million if its gross receipts or sales from sources outside the U.S., as determined under federal income tax principle, are excluded.
An ag business would qualify for an exemption if it is a subsidiary of an exempt large operating company.
According to the Center for Agricultural Law & Taxation at Iowa State University, the BOIR requires the business’ name, complete address and a Taxpayer Identification Number. It also requires beneficial owners’ full legal names, birth dates, current residential addresses and an i.d. number from a current driver’s license, passport or other approved document.
Rumley said that if a company or a beneficial owner changes its name or address or other required information, or the beneficial ownership changes, the new information must be reported.
“If the information on your driver's license changes or the ownership percentages at your company change so that somebody gets more than 25%, you've got to amend that report,” Rumley said, offering some examples where this scenario might come up. “So, you move to a different house, and you get a new driver's license, you’ve got to update this. You get married and your last name changes. You get a new driver's license; you’ve got to change this. The older generation passes away, and now the kids or grandkids are stepping in, taking up the reins.”
The CTA was ruled unconstitutional by the U.S. District Court for the Northern District of Alabama in March. However, the ruling only applies to the plaintiffs in the case National Small Business Association (NSBA) United vs. Yellen. These included businesses that were NSBA members as of March 1 and co-plaintiff Isaac Winkles, according to information from the National Agricultural Law Center (NALC). The federal government has appealed the ruling.
U.S. Reps. Zach Nunn (R-IA) has introduced the Protect Small Businesses from Excessive Paperwork Act (H.R. 9278), which would delay the CTA’s reporting requirements by one year. The bill is backed by Reps. French Hill (R-of Ark.), Sharice Davids (D-KS) and Yadira Caraveo (D- CO). Similar legislation is on hold in the Senate.
For the NALC’s review of the law, click here.
For the Iowa State University review of the law, click here.
For FinCEN’s guide to the BOIR or to file a BOIR, click here.
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