A federally mandated requirement impacting reporting obligations for millions of businesses took effect Jan. 1, 2024, requiring certain limited liability companies (LLCs), corporations and other entities (subject to exemptions) to file beneficial ownership information reports with the U.S. government under the Corporate Transparency Act of 2021 (CTA). CTA was enacted by Congress in 2021 to help prevent and fight money laundering, corruption, and financial and tax fraud. In implementing CTA, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a rule extending the reporting timeline for “Reporting Companies” formed after Jan. 1, 2024, but before Jan. 1, 2025, following FinCEN’s Beneficial Ownership Information Reporting Rule (BOIR Rule) which outlines requirements pertaining to who must file, what information has to be reported and when reports must be filed.

LLCs, corporations and other business entities must be aware of and ensure their compliance with the BOIR Rule requirements, if applicable. Noncompliance can lead to the imposition of costly penalties. Entities must evaluate whether the rule is applicable to them, specifically whether they fall under the definition of a “Reporting Company.” They must also determine whether the entity meets any of the exemptions to the definition of a Reporting Company. If the entity is a Reporting Company and does not meet an exemption, the entity must determine what information it must submit and when.

The BOIR Rule divides Reporting Companies into two categories: domestic and foreign:

• A domestic Reporting Company is a corporation, LLC or other entity created by the filing of a document with a secretary of state or similar office under the laws of a U.S. state or American Indian Tribe.
• A foreign Reporting Company is a corporation, LLC or other entity formed under the law of a foreign country and registered to do business in any U.S. state by the filing of a document with a secretary of state or similar office under the laws of a U.S. state or American Indian Tribe.

As the definition of a “Reporting Company” is exceedingly broad, most domestic entities fall within (i). Notably, some domestic entities (e.g., certain trusts) are not created by the filing of a document with the secretary of state or similar office.

The entity must next determine whether an exemption applies to the reporting requirements, as the purpose of the exemptions is to exempt from CTA reporting requirements those entities that are already subject to separate ownership reporting requirements under U.S. regulations.1 These exemptions have specific requirements to qualify. By way of example, for the “large operating entity” exemption, the entity must employ 20 full-time employees in the U.S., have an operating presence at a physical office in the U.S. and file a federal income tax or information return in the U.S. evidencing more than $5 million in gross receipts or sales. While a dealership operating entity might satisfy this exemption’s requirements, entities owning the dealership real estate typically employ very few, if any, employees and would likely not satisfy the exemption requirements.

Reporting Companies not subject to exemption must file initial reports with information: (i) about the Reporting Company; (ii) the beneficial owners; and (iii) if created or registered to do business in a state after Jan. 1, 2024, the Reporting Company’s Applicant (i.e., individual who directly files the entity-creating document). Reports must include the Reporting Company’s legal name, address, state of formation, IRS taxpayer ID number, beneficial owners (i.e., any individual who directly or indirectly either exercises substantial control over the entity or owns at least 25% of the ownership interests of the entity), and beneficial owners’ names, dates of birth, current addresses and a photographic ID document (i.e., passport or driver’s license). After the initial report filing, Reporting Companies do not have annual filing requirements but must update and correct as necessary.

Below are applicable reporting deadlines:

• Entities created or registered before 2024 must file their initial reports by Jan. 1, 2025.
• Entities created or registered in 2024 must file within 90 days of creation or registration.
• Entities created or registered on or after Jan. 1, 2025, must file within 30 days of creation or registration.

Entities must review the CTA and BOIR Rule to determine whether reporting requirements apply and consult with their legal and tax advisers as several open questions exist concerning the BOIR Rule’s implementation.

Julie A. Cardosi is Principal of the private firm, Law Office of Julie A. Cardosi, P.C., of Springfield, Illinois. She has practiced law for 38 years and represents the business interests of franchised motor vehicle dealers throughout Illinois. Formerly in-house legal counsel for the Illinois Automobile Dealers Association, she concentrates her private practice in the areas of dealership operations and compliance matters, transfers of ownership, mergers and acquisitions, franchise law, commercial real estate transfers, dealership employment and other areas impacting day-to-day dealership operations. She has also served as former Illinois Assistant Attorney General and Deputy Chief of the Consumer Fraud Bureau of the Attorney General’s Office. The material discussed in this article is for general information only and is not intended as legal advice and should not be acted upon as such. Dealers should consult their own private legal counsel for application to their specific circumstances. For more information, Julie can be reached at jcardosi@autocounsel.com or at 217-787-9782, ext. 1.